Several Lords—took the Oath.

Baroness Scotland of Asthal: My Lords, I understand the concern that the noble Lord justly expresses in relation to children of this sort. The truth is that it is very difficult to understand where those children go. A number of children simply move from one school to another without the authorities being notified that that has taken place.
	As noble Lords will know, we have a transient population. There are more than 600,000 children in primary school education. As such it is important for us to identify whether there is a good or a bad reason why those moves have taken place. The Department for Education has put in place a system to help to identify where those children are going.

Baroness Scotland of Asthal: My Lords, my noble friend is right. Noble Lords may be aware that Tim Benson, head teacher of Nelson Primary School in East Ham, London, and a National Association of Head Teachers representative, has been quoted by the BBC as saying that most children had probably simply moved to another school. It is the monitoring of that that we must get clear, so that we understand where those children are.
	Many of them, thankfully, are safely in another school, but where we identify children who are of concern, it must be right that we have a system in place that alerts the authorities to the fact that those children are purely missing and that something has to be done about it. It is that cadre of children about whom we have to be very concerned.

Baroness Walmsley: My Lords, is the Minister aware that the End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT) organisation pointed out in a recent report entitled Cause for Concern that information on child trafficking is very hard to find? It points out that information is extremely important in order to set up appropriate services.
	I am sure that the Minister is aware that the only support for trafficked people is for women who are subject to prostitution. There is very little support, if any, for children. Will the Minister set up a system for collecting information to be shared with appropriate professionals about children who are trafficked so that appropriate services can be set up?

Baroness Scotland of Asthal: My Lords, it is a very difficult issue. I know that there has been a great deal of comment in the press about a number of cases of people who believe that children have been possessed. However, the possession of the devil is part of a number of religions and is not confined to a certain section or a certain continent. Many Anglican and Catholic Churches, of course, also believe that the devil is well at work.

Baroness Gardner of Parkes: asked Her Majesty's Government:
	What proposals they have to reduce the number of attacks on National Health Service staff on professional duty; and what proposals they have to deal with those committing these offences.

Lord Warner: My Lords, I shall be delighted to tell the House about the national Counter Fraud and Security Management Service. It is one of the most successful bodies set up by the Government to counter fraud and better to protect NHS staff. I am grateful to the noble Baroness for giving me the opportunity to do a little commercial for the body. As we have discussed, it is a National Health Service body, and it has set up its own legal protection unit, which undertakes prosecutions. It made its first prosecution in September 2004. I can give the House a number of examples. It initiated the first anti-social behaviour order against a person who assaulted NHS staff; another person who assaulted staff received a three-year custodial sentence; and a father and son who attacked NHS staff in Newcastle were each sentenced to nine months imprisonment. That shows the kind of action the service is taking. We shall be publishing the 2004–05 prosecution numbers in the not too distant future.

Lord Warner: My Lords, the new NHS security management service has ensured that each NHS health body has an executive director who is responsible for security management. There are increasing numbers of local security management specialists, who work in all the high risk areas—such as mental health, learning disabilities, ambulance services and A&E—to help protect staff and to make them more aware. Since April 2004 we have launched the largest ever training programme for the NHS to equip 750,000 front-line NHS staff with the necessary skills to identify potentially violent situations and to prevent them from escalating.

Lord Warner: My Lords, they are people whose behaviour is unacceptable in every way irrespective of their backgrounds.

Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply. However, weekend reports, which have not been denied, refer to an £18 billion shortfall in procurement funding over the next decade. Are the carriers now to be reduced in size because the MoD has overspent its budget? Will the delivery date be pushed back? And are the numbers of JSFs to be cut from 150 to only 100?

Lord Berkeley: My Lords, can my noble friend tell the House whom these carriers will be fighting? You can build an awful lot of hospitals, schools, roads and railways for £80 billion over 10 years.

Baroness Williams of Crosby: My Lords, I too welcome the Minister, but this is still the same sorry story that we saw in Rwanda and, before that, in Srebrenica—a story of terrible deaths continuing day after day, while pressure is brought to bear, civil servants have discussions and all the rest of it. The contrast with what we do in military actions is searing and agonising.
	Can the Minister give the House the assurance that Her Majesty's Government will make certain that, as far as possible, the African Union—the one major force on the ground—will have all the ordinance and all the equipment that it needs to carry out its mission and to enable it to expand that mission so that this ghastly situation can be brought to an end?

Lord Brabazon of Tara: My Lords, with the leave of the House, I beg to move en bloc the four Motions standing in my name on the Order Paper.
	Administration and Works
	Moved, That a Select Committee be appointed to consider administrative services, accommodation and works, including works relating to security, within financial limits approved by the House Committee;
	That, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the Committee:
	V. Allenby of Megiddo, L. Cope of Berkeley, L. Dixon, L. Grocott, E. Mar and Kellie, B. Masham of Ilton, L. Naseby, L. Shutt of Greetland, Bp. Southwell, V. Ullswater, B. Wilkins, L. Williamson of Horton;
	That the Committee have leave to report from time to time.
	Information
	Moved, That a Select Committee be appointed to consider information and communications services, including the Library and the Parliamentary Archives, within financial limits approved by the House Committee;
	That, as proposed by the Committee of Selection, the following Lords be named of the Committee:
	L. Baker of Dorking (Chairman), L. Brooke of Alverthorpe, L. Brougham and Vaux, L. Chadlington, L. Craig of Radley, V. Eccles, B. Greenfield, L. Haskel, L. Methuen, B. Prosser, L. Puttnam, L. Rodger of Earlsferry, L. Smith of Clifton;
	That the Committee have leave to report from time to time.
	Refreshment
	Moved, That a Select Committee be appointed to advise on the refreshment services provided for the House, within financial limits approved by the House Committee;
	That, as proposed by the Committee of Selection, the following Lords be named of the Committee:
	L. Borrie, B. Darcy de Knayth, L. Davies of Oldham, L. Denham, B. Emerton, B. Fookes (Chairman), B. Gould of Potternewton, B. Harris of Richmond, C. Mar, B. Pitkeathley, L. Redesdale, L. Wade of Chorlton;
	That the Committee have leave to report from time to time.
	Works of Art
	Moved, That a Select Committee be appointed to administer the House of Lords Works of Art Collection Fund; and to consider matters relating to works of art and the artistic heritage in the House of Lords, within financial limits approved by the House Committee;
	That, as proposed by the Committee of Selection, the following Lords be named of the Committee:
	L. Bernstein of Craigweil, V. Chandos, L. Crathorne (Chairman) , V. Falkland, L. Gavron, E. Glasgow, L. Harris of Peckham, L. Luke, E. Onslow, L. Palmer, L. Rees-Mogg, Ly Saltoun of Abernethy;
	That the Committee have leave to report from time to time.

On Question, Motion agreed to.

Baroness Scotland of Asthal: My Lords, I beg to move that this Bill be now read a second time.
	The Government believe that a thriving charity sector is a cornerstone of a healthy society. Perhaps I may say just a word about someone else who thought that it was the cornerstone of society. That is our late and dear friend Lady Blatch.
	Your Lordships will know that she was a Minister of State in the Home Office and was responsible for Home Office policy in relation to charities during her ministry, which started in 1992. She worked tirelessly on this and other issues, and had a strong commitment to education. As noble Lords will also know, she was president of the National Benevolent Institute. I know that my noble friend Lady Ashton, who sits beside me on the Front Bench, joins with me in acknowledging the commitment that Lady Blatch made. We would like to say, if the House gives us leave, that we very much regret that she is not with us during the discussion of this Bill today. I know that she would wish it well.
	Through the Charities Bill, we aim to facilitate and promote the activities of the sector by creating a modern legislative framework for it. Many of us in this House enjoyed some 32 hours of discussion in Grand Committee on this Bill. We had the privilege of discussing the provisions on 3, 9, 10 and 23 February, and 8, 14, 16 and 21 March. In the Printed Paper Office there is a delightful compendium of all the discussions that we enjoyed during that period. I am confident that it will rest with each Member who participates in the debate on the new Bill—and I intend to rely on each and every word of what they said, by way of explanation, in the hope and aspiration that it will not have to be said again.
	The Government's three aims for the Bill remain. The first is to provide a legal and regulatory environment that will enable all charities, however they work, to realise their potential as a force for good in society. Secondly, we want to encourage a vibrant and diverse sector, independent of government. Thirdly, we want to sustain high levels of public confidence in charities through effective regulation.
	The story of this Bill is one of a thorough process and substantial consultation. I am very pleased that the Bill has attracted much support, not only in your Lordships' House but, importantly, throughout the charitable sector itself. The Bill's content is based on proposals by the Prime Minister's strategy unit, published in late 2002. The draft Bill, published in May last year, received pre-legislative scrutiny by a joint committee of your Lordships' House and another place, and the Government accepted more than three quarters of the joint committee's recommendations. Many of your Lordships will know that we then introduced the Bill to your Lordships' House on 20 December last year.
	The Bill completed Grand Committee in March but fell when the general election was called. The Bill that we reintroduced on 18 May has had the benefit of more than 30 hours debate in Grand Committee. I am told that it had 31.2 hours, to be precise. The Bill as reintroduced incorporates the amendments made in Grand Committee together with the amendments tabled by the Government for Report and a very small number of minor drafting changes. In other respects it is the same Bill as before.
	The Bill has five principal themes. First, the definition of charity and the public benefit requirement; secondly, changes to the Charity Commission's constitution and functions, and the creation of a new tribunal to hear appeals against commission decisions; thirdly, the creation of a new corporate legal form for charities, the charitable incorporated organisation; fourthly, changes to ensure that effective and proportionate regulation applies right across the sector, including those charities which have not in the past had to register with the Charity Commission; and, fifthly, the regulation of charitable collections. I shall cover those areas in a bit more detail later on.
	The Bill extends to England and Wales only. In both Scotland and Northern Ireland, subject to suspension of the Assembly there, charity law is a devolved matter. A charity law reform Bill is currently before the Scottish Parliament. Continuing co-operation between the Scottish Executive and the UK Government, and between the regulators in each territory, will ensure that the two Bills are compatible.
	I shall now describe the content of the Bill in more detail. Part 1 covers the meaning of "charity" and "charitable purpose" and applies a public benefit requirement which all organisations will have to satisfy to qualify as charities. The Bill removes the presumption of public benefit from those charitable purposes which currently have that presumption: the relief of poverty, the advancement of education and the advancement of religion. It also requires the Charity Commission to issue guidance on the public benefit requirement. The commission will carry out checks on charities, starting with charities that charge fees for their services, to ensure that those charities are meeting the public benefit requirement.
	Part 2 of the Bill covers the regulation of charities. It modernises the Charity Commission's constitution, governance and powers, preserving the commission as an independent, non-ministerial department. Challenge to the commission's legal decisions must currently be made in the High Court. The Bill's creation of a new charity appeal tribunal will make it easier to challenge commission decisions. The compulsory threshold for registration is raised by the Bill from an annual income of £1,000 to £5,000. Charities whose income falls below the threshold will still be able to register voluntarily.
	There are changes to the regulation of excepted charities, such as Armed Forces and Church charities. Those charities do not currently have to register with the commission, and the Bill requires those with an annual income of more than £100,000 to register with the commission. Those charities are already within the commission's regulatory jurisdiction, and the changes made by the Bill should not significantly increase the burden on those organisations.
	There are also changes to the regulation of exempt charities. That group includes the universities, other places of further and higher education, schools, museums and galleries. At the moment, they are excluded from the commission's regulatory jurisdiction and they are not monitored for compliance with charity law. New "principal regulators" have been identified for various groups of charities, such as the Department for Culture, Media and Sport for some of the art galleries. When no principal regulator can be identified, the Charity Commission will regulate formerly exempt charities for charity law compliance.
	Part 2 also contains provisions modifying the cy-pres rule, to give the Charity Commission greater flexibility when changing a charity's failed purposes into useful new purposes. Part 2 also contains provisions raising the threshold for professional audit of charity accounts and introducing new protection for auditors who whistleblow. The Bill creates a new corporate legal form for charities, the charitable incorporated organisation, or CIO. Unlike the most popular existing corporate form, the company limited by guarantee, the CIO will be regulated only under charity law and not under company law. That is a significant deregulatory measure.
	Part 2 also gives a power for trustees to be paid for some types of service provided to the charity, subject to safeguards and only when it is in the best interests of the charity. It also allows trustees to apply to the Charity Commission for relief from personal liability for breach of trust when they have acted honestly and reasonably. Other provisions of Part 2 will allow charities to spend small amounts of permanent endowment capital more easily than at present, and will facilitate mergers between charities.
	Part 3 of the Bill has been much welcomed. It reforms the regulation of public charitable collections by introducing a new, unified licensing scheme. The function of checking an organisation's general eligibility to hold public collections will rest with the Charity Commission, while local authorities will continue to have the function of issuing permits to authorise the holding of a collection at a specified time and place. The scheme will cover face-to-face collections in the street for direct debits which are not properly regulated under the present law.
	Part 3 also gives the Home Secretary a power to regulate all forms of charity fundraising. He will not exercise this unless the self-regulation of fundraising fails. The Home Office is consulting on the criteria for assessing the success of self-regulation. There are also new powers for the Secretary of State and for the Welsh Assembly to fund voluntary organisations working in England and in Wales respectively.
	I said earlier that we have made some amendments to the Bill since it was last before your Lordships' House. I mention the more significant of them now. I shall give the clause numbers so that those who wish to follow what I say using the Bill will be better able to do that.
	At Clause 37, the Bill now gives charity trustees a statutory power to purchase trustee indemnity insurance using their charity's money. Another new provision, at Clause 70, will require the Home Secretary to appoint an independent person to review the operation of the Act within five years of Royal Assent. The review will, among other things, have to look at the effect of the Act on excepted charities, such as charitable funds within the Armed Forces. The Bill prohibits at Clause 9 any lowering of the registration threshold for excepted charities until the review has been reported to Parliament.
	On the Charity Commission, we have introduced a number of provisions responding to concerns raised by noble Lords in Grand Committee. At Clause 6, the Bill now guarantees the commission's independence by specifying that it is not subject to the direction or control of any Minister or government department. At Clause 7, the Bill now also puts the commission under a duty to have regard to the principles of best regulatory practice, including the principle that regulatory actions should be proportionate. And at Schedule 1, it puts a three-year limit on the period for which members of the Charity Commission may be appointed, with a power to renew the appointment to a maximum of 10 years in all.
	The Charity Commission's continuing status as a non-ministerial department will be addressed as part of the independent review that must take place within five years of Royal Assent. We have also included a provision, at paragraph 127 of Schedule 7, to ensure that the identities of recipients of grants given by a charitable trust need not be disclosed in the trust's accounts during the lifetime of the settlor or his or her spouse or civil partner.
	On mergers, the Bill will now require, at Clause 42, that charities wishing to take advantage of the merger provisions in the Bill confirm to the Charity Commission, when they notify the commission of their merger, that they have made proper arrangements to discharge their liabilities.
	We have also added power at Clause 73 to make pre-consolidation amendments by order, as we agree with noble Lords that a consolidation of charity law would be desirable. The consolidation of statutes is principally a matter for the Law Commission, but we understand that the commission hopes to begin work on the consolidation soon after the Bill receives Royal Assent.
	The Government plan to table further amendments in Committee in response to concerns expressed in Grand Committee and I should like to outline them briefly. I hope that all of these amendments will give noble Lords a degree of pleasure and not irritation.
	Before the general election, my noble friend Lord Dubs tabled amendments in Grand Committee to provide for groups of charities to prepare accounts for the whole group rather than just for the individual charities in the group. We agreed with the spirit of my noble friend's amendments but time did not allow us to incorporate his proposals into the Bill. We now propose to do so.
	We also propose to change the name of the "receiver and manager" that the Charity Commission may appoint in certain circumstances to "interim manager". We are also looking at the possibility of including provisions giving the Attorney-General or the Charity Commission a power to refer a matter to the new Charity Appeal Tribunal for a decision in certain circumstances.
	Finally, although this is not expressly stated in the Bill, the Government propose to carry out a review of all the financial thresholds in the Bill one year after Royal Assent to see whether those thresholds are fixed at appropriate levels. The thresholds can be changed if necessary by subordinate legislation.
	I am very grateful to all noble Lords for their invaluable help so far in shaping the Bill. Perhaps I may particularly mention the noble Lord, Lord Hodgson, and my noble friend Lord Bassam, who shouldered an immense burden when this matter previously was going forward. I commend their industry and hard work.
	The Government have listened and, as I hope noble Lords will agree, responded positively to the consultative debates we have had. I do not for a moment exclude the noble Lord, Lord Phillips, who I think has been a redoubtable Grand Committee member and has made a real impact on this whole area of law.
	The charitable sector was disappointed, as were the Government, that the Bill did not receive Royal Assent before the general election. I know that the sector remains very keen to see the Bill enacted. I commend it without reservation to the House.
	Moved, That the Bill be now read a second time.—(Baroness Scotland of Asthal.)

Lord Hodgson of Astley Abbotts: My Lords, it is only right that I should begin by thanking the noble Baroness for her characteristically sincere and indeed touching tribute to our late colleague Lady Blatch. When I came into the House four or five years ago—a daunting experience, as we all know—my noble friend was one of the people who especially went out of their way to make me feel welcome and at home. I shall miss her; I am sure that we will all miss her. But equally I know that her family will be warmed by the noble Baroness's words. I thank her most sincerely for them.
	The House will also be grateful to the noble Baroness for her thorough explanation and introduction—or perhaps I should say reintroduction—of this important Bill. But for those of us who have been involved since its earliest Second Reading, on 20 January 2005, it is hard to avoid a sense of déjà vu.
	As the noble Baroness pointed out, the original presentation of the Bill on 21 December—I always wondered whether it was symbolic that publication occurred on the shortest day of the year; but never mind—was the culmination of a very long consultation process. She referred to the extensive pre-legislative scrutiny and indeed the wide-ranging Second Reading debate and the eight Grand Committee sittings. I should like to add my thanks to those she gave to the authorities of the House for the new procedure of binding together all the Grand Committee proceedings in one volume. That is extremely helpful to those of us who have to work with Committee stage debates. I should like to place on record my thanks to the authorities for that.
	As the noble Baroness pointed out, one very desirable consequence of this elongated and long drawn out process has been that the sector has had ample opportunity to make known its views and to have points and issues aired and discussed. We on these Benches recognise that the Government have listened carefully to the debates. We are very grateful that they have been able to accept many of the amendments that we have tabled. We believe that the Bill is now clearer in its meaning and purpose, and that that in turn will communicate a clearer message both to charities—which need to understand the ramifications of the charity legislation—and the public, whose positive perception of charities is fundamental to the sector's continuing success.
	Inevitably, many of the amendments now included in the Bill are technical. However, as the noble Baroness pointed out, a number of them are highly significant. The addition of the definition of the word "religion" meets a widespread demand, although I am sure that Ministers will be aware of concerns among groups such as the British Humanist Association about the circularity of the definition adopted. It is not quite clear why we are not able to go straight to the definition which is tried and tested under Australian and New Zealand law.
	The attempt to provide increased insulation from political pressure for the Charity Commission by the insertion of the subsection in Clause 6 is very welcome; so too is the requirement for the commission to follow best regulatory practice, and the restructuring of the make-up of the commission's members to ensure that at least some have experience of operating smaller charities. Avoiding a "one size fits all" approach to charity regulation was a central concern. That was aired frequently in meetings with interest groups and representatives from charitable and support organisations.
	The Bill has been amended to keep a degree of flexibility so that multinational charities, local community charities, exempt charities and foundations established by private individuals can be regulated and treated appropriately, albeit differently, to reflect their particular circumstances. We therefore now have the opportunity to put the final touches to a Bill that has already been much improved.
	First, it is proper for me to declare that I have a number of charitable interests, all of which are disclosed in the Register. Given the nature of the Bill, two of those are of particular importance. I declared them at the first Second Reading and I do so again now. I am honorary fellow of St Peter's College, Oxford—which will cease to be an exempt charity under the Bill—and chairman of the college's foundation, a registered charity. I am also a governor of Shrewsbury School, one of the seven great schools as defined in the Public Schools Act 1868, another registered charity that has hitherto enjoyed the presumption that is to be lost under this legislation.
	I am mindful of the fact that we discussed the Bill's background in depth at the first Second Reading and shall therefore try to avoid too much repetition. However, as a first important general point I should like to make it clear again that on these Benches we remain in support of the Bill's principles and of the policies that underlie it. The Government have, as was pledged by the noble Baroness at the first Second Reading, been open to persuasive argument. We are grateful for the improvements that they have already taken on board. However, we still have some areas of concern. Some of these are points of clarification or of detail. Our major concerns are restricted to six headings.
	First, the structure of the commission will be a subject that we shall continue to probe because we feel that more can still be done to achieve an entirely independent Charity Commission. This point has been much discussed both on the Floor of the House and in Committee. It is important to reiterate that we seek to be reassured that the Charity Commission will truly be insulated from political pressures of any kind. It is good that the Government have taken some steps towards achieving that independence by inserting the clause to which the noble Baroness has already referred. However, paragraph 5(2) of Schedule 1 still stipulates inter alia that,
	"The appointment of a chief executive [of the commission] requires the approval of the Minister for the Civil Service as to the chief executive's terms and conditions of service".
	Further, as an independent body, the commission still requires the Minister's permission as regards staffing levels, rates of pay and conditions of work. Is that really independence? The noble Baroness, Lady McIntosh, who I believe we shall have the pleasure of hearing later, made that point powerfully at Second Reading at col. 914. I share the noble Baroness's view that the commission should have the organisational and structural freedom to make its own way and attract men and women of quality to work for it.
	Secondly, we wish to discuss further the functions and duties of the commission. Specifically we wish to discuss whether the Bill should include a provision requiring the commission to facilitate the development of and innovation in the charitable sector. The danger of a risk-averse regulator setting its face against new developments would be wholly deleterious to the growth and responsiveness of the sector. It is a truism that we live in an age of rapid social and economic change. One of the strengths of the voluntary sector is its ability to respond quickly and flexibly to new needs. This flexibility must not be put at risk. We also wish to discuss whether the commission should have a greater obligation to differentiate between advice and regulation. The danger of regulatory creep has been well covered in our previous Committee stage debates.
	All parties agree that the performance of the commission is fundamental to the efficacy of this legislation. We hope therefore that some final touches can be made to ensure that its role as charity regulator—balancing the need to ensure compliance and engender accountability on the one hand while encouraging charitable endeavour on the other—is clear to all.
	Thirdly, we shall wish to return to the levels at which registration with the commission is required and at which formal annual audit of accounts or independent examination of accounts needs to be undertaken. I was reassured by the noble Baroness's promise of a future look into these numbers but as presently structured these latter requirements are unnecessarily complex. They are different for charities which are companies as opposed to charities which are trusts. They involve sometimes income thresholds, sometimes asset thresholds and sometimes both. Charities move into different categories at £5,000, £10,000, £90,000, £100,000, £250,000, £500,000, £1.4 million and £2.8 million. I appreciate the interrelationship with the provisions of the Companies Act but this is ridiculous. If we really want to make charity law easily understood, we must and can do better than this. I cannot believe that the integrity of the regulatory system would be imperilled if we reduced the number of layers.
	Fourthly, we shall wish to return to aspects of the operation of the Charity Appeal Tribunal. We believe that improvements can still be made regarding its scope and operation. Like the joint scrutiny committee, we argue that the Attorney-General and the commission should both be given the power to refer issues to the tribunal, anticipating problems that might arise. I am delighted to hear that the noble Baroness hopes to bring forward amendments to address that issue. We look forward to seeing them when they are finally tabled. The key objectives for the procedures of the new tribunal must be that it is user friendly, cheap and speedy if it is to prove its worth.
	Fifthly, public collections were perhaps less scrutinised in Committee due to time constraints. As I said at the previous Second Reading in January, the issue of fundraising, especially fundraising from the public, is important, particularly as it is the aspect by which public confidence in the sector could most easily be shaken. The proposals in Part 3 of the Bill were not perhaps given as careful a review as the rest of the Bill. We should take this second opportunity to ensure that the proposed legislation covering public collections will be effective without being overly bureaucratic. As an example of what I mean, today's papers carry pictures of the Prime Minister welcoming representatives of Alexandra Rose Day to No. 10 Downing Street. Alexandra Rose Day is a charity that works with other charities to help the elderly and the handicapped. We have been told of local authorities refusing to issue collection certificates because Alexandra Rose Day did not deal directly with the handicapped and elderly but worked through other charities. That is not a reasonable attitude and the Bill should give powers to make sure that that kind of thing cannot happen.
	The success of self-regulation of fundraising by the voluntary sector itself needs to be carefully considered. In her letter to me dated 14 March the noble Baroness informed me of the publication of a consultation paper by the Home Office on the criteria which would be used to assess the success of the self-regulation. We look forward to hearing from the noble Lord, Lord Bassam of Brighton, when he winds up the debate how that consultation process is proceeding.
	The sixth and final issue that remains to be addressed is the question of charity law consolidation—again referred to by the noble Baroness. I recognise her encouraging words and the encouraging words of the noble Lord, Lord Bassam, in Committee. However, enabling the regulatory requirements for charities to be understood by the sector itself, especially among smaller charities, is a fundamental motive for the modernising of charity law. Charity law will not be fully demystified, let alone made comprehensible and accessible, until the various Acts have been consolidated.
	We believe that the level of scrutiny the Bill has so far enjoyed has improved it. We are very grateful to the Government for accepting many amendments. A well drafted, clear and balanced Bill is being constructed and only a handful of issues, albeit some of them important, remain.
	In conclusion, my grandfather who fought on the Western Front in the First World War had a favourite phrase that enlivened my childhood, by which he called for a special effort from me. The phrase was, "One more heave and we shall be in Berlin by Christmas". We are not going to Berlin and I hope that we will act before Christmas but one more heave should take this Bill to its well deserved and long anticipated place on the statute book.

The Lord Bishop of Southwell: My Lords, we on these Benches want to associate ourselves with the tribute paid by the Minister to Baroness Blatch. She was a devoted Christian and a doughty fighter and debater, whose fighting spirit showed through the latter stages of her illness. Her doughtiness led her at times to take on the Bench of Bishops and my friend the right reverend Prelate the Bishop of Oxford said to me just after Prayers that he still carried some of the bruises. She will be sorely missed.
	Like previous speakers, I declare an interest both in a personal capacity as a trustee in various charities and an ex officio trustee by virtue of the office of Bishop. I believe that those are all in the register.
	On Second Reading I spoke from these Benches in general support of the previous Bill. I welcomed the changes that it would make to the framework for the regulation of charities and the provisions that would benefit charities by giving them greater freedom, subject to appropriate safeguards in pursuing their charitable purposes.
	The Bill in its reintroduced form deserves no less support. Indeed, there are some welcome changes, such as the new power for charity trustees to take out trustee indemnity insurance. That provision may help not only to prevent people being discouraged from acting as trustees of the smaller charities but to relieve the burden on the hard-pressed Charity Commission.
	The Bill has not been amended in relation to the abolition of the presumption of public benefit, which applies in some cases at present when charitable status is being determined. At Second Reading and in Committee on the previous Bill, we spent many slow but happy hours in the Moses Room, lacking only the provision of tea at tea time. I expressed many concerns about the implications of the abolition for the large number of charities associated with the churches and other faith groups, and went on to seek assurances that, if public benefit had to be demonstrated, the assessment of that benefit would be undertaken in a properly informed and constructive way.
	Since then, however, representatives of the churches have had the benefit of a constructive and helpful meeting with representatives of the Charity Commission, which has gone some way to reassuring us that the guidance on the public benefit requirement that the commission will have to produce will properly reflect not only the wide range of religious activity that is currently accepted as charitable, but the full breadth of the benefit to the public—both direct and indirect—that is derived from that activity. Following that encouraging start, we look forward, together with other faith communities, to working with the commission on the development of the statutory guidance.
	However, the removal of the presumption of public benefit is not the only way in which the Bill will have an impact on the churches and other faith groups. In many cases, the institutions through which they work enjoy charitable status. The Bill will change the nature of the relationship between some of those institutions and the Charity Commission.
	At one end of the spectrum the Church Commissioners will cease to have exempt charity status—a change that we acknowledge brings them into line with other charities. Initial concerns about the implications of the change for the continued ability of the commissioners to fulfil their important role of funding clergy pensions, which to people like me become increasingly important, and the ongoing support of the Church in areas of need and opportunity, have been allayed by assurances given by the Minister's colleagues. We are grateful for those assurances and for the spirit of openness which Ministers have shown.
	However, the Church Commissioners are by no means the only body connected with the churches for which the Bill will bring about a major change in their relationship with the Charity Commission. The amendments to the position of excepted charities will mean that many denominational charities will, for the first time, have to register with the commission. They are often local bodies, including parochial church councils in the case of the Church of England and church and chapel trustees in other denominations. They are all basic building blocks of the churches at local level and, indeed, in many areas of the local community.
	That does not give undue rise for concern to those of us on these Benches. We recognise that even as excepted charities, such bodies have rightly had to meet the same requirements in many respects as registered charities. The real issue is not whether such bodies should be registered but whether they are registered or excepted, the regulatory burden to which they are subject is not in danger of becoming too great.
	The bodies that I have described are essentially community organisations. As such they are heavily reliant on the good will of volunteers and often do not have access to skilled, professional advice. As a result we hear increasing concerns that religious bodies are encountering difficulty in recruiting new office holders because of concerns about the responsibilities involved.
	For example, there is evidence that parochial church councils are finding it increasingly difficult to persuade people to act as treasurers, while the Church of England every year needs to recruit 13,000 plus treasurers and 26,000 plus church wardens to serve those local communities. I join the noble Lord, Lord Phillips of Sudbury, in expressing my concern that the regulatory burden, particularly in relation to financial matters, should not be increased further. To do so would, in our view, run the risk of infringing the principle enshrined in one of the proposed new duties of the commission—that regulatory activities should be proportionate. The effect of the regulatory burden in the form that it will take if the Bill passes into law will need to be kept under careful review, lest excessive regulation stifle the voluntary impulse on which we rely in our nation, and on which so many of our smaller local charities depend. We therefore welcome the opportunity provided for that by the requirement for a formal review process, to be imposed in Part 4.
	Subject to that small but cautionary note, we welcome the changes that the Bill will make to the regulation of charities and, for our part, commend it to your Lordships' House.

Lord Craig of Radley: My Lords, speaking for myself and, I hope without presumption, for others on these Benches, I associate myself with the moving tributes paid to Lady Blatch. She was a lovely lady and a formidable contributor to the work of this House and I, for one, will greatly miss her.
	My charitable interests are all listed in the Register of Members' Interests. My concerns about this otherwise broadly satisfactory approach to charity law relate to the treatment of service non-public funds (SNPFs) which are charities. There are about 15,000 of them, spread across the three Armed Forces. They range widely in application and geography, covering a host of interests, from officers' and sergeants' mess accounts to service sporting and recreational activities. They can amount to as much as several million pounds, in the case of a service central fund, or to a few hundred pounds for some small activity.
	The origins of the SNPFs' charitable category go back to the Statute of Charitable Uses 1601. SI 1056 of 1965 authorises their current excepted charitable status. SNPFs should not be confused or grouped with the many charities that in one way or another provide assistance and support for service and ex-service personnel and their families—for example, the Royal British Legion, SSAFA, Army and RAF Benevolent Funds and many others. SNPFs are quite separate. Most significantly, they do not fund-raise from the public. Their funds derive from the pockets of serving personnel.
	The Bill raises three concerns for me about the treatment of SNPFs: the public benefit test; registration and auditing costs; and devolved regime problems. My noble and gallant friend Lord Boyce, who cannot be here today, supports me wholeheartedly in my concerns.
	Ministers have assured us that SNPFs will continue to enjoy charitable status. The new Minister in charge, Paul Goggins, has written to us following a meeting that my noble and gallant friend and I held with Fiona Mactaggart, who had been dealing with this topic before the election. I thank him for writing. A very delayed return flight to the UK yesterday left me no time to respond properly before this debate. Some of his points have certainly been helpful, but I remain concerned whether the Bill as drafted gives SNPFs sufficient safeguard and reassurance for the future.
	For "charitable purpose", SNPFs must rely on the sweep-up of Clause 2(4), which indicates that any institution that is a charity under existing charity law continues to have a charitable purpose. Surprisingly, the Armed Forces are not mentioned in any of the descriptions of purpose in Clause 2(2), although military forces are deemed charitable in the 1601 Act. Indeed, none of the Clause 2 descriptions of purpose goes anywhere near embracing the "efficiency of the armed forces"—the relevant words in SI 1056.
	Au contraire, purposes such as the advancement of conflict resolution and reconciliation or animal welfare are specified—the latter a modern day concept seen as worthy of mention while long-standing military welfare is not. What sort of message are the Government trying to send the Armed Forces? I am greatly disappointed and disheartened that the Government still choose not to reflect that ancient recognition of the charitable value attaching to the Armed Forces, whom today they so frequently praise and claim to do so much for the good of the country. Surely a mention in the Bill would not be amiss or cause widespread dismay.
	Turning to the "public benefit" test, the House should note that Clause 2(3) negates three presumptions in the 1601 Act of charitable benefit. Organisations for the relief of poverty, the advancement of education and of religion do not per se meet the public benefit criterion. This, the Explanatory Notes tell us, puts all charitable purposes on "the same footing" for the public benefit test. No mention is made of the Armed Forces, whose charitable status also springs from the 1601 Act. Does that mean that the military charitable purpose is to be treated as retaining a public benefit? Is that what is intended?
	Clause 4 requires the Charity Commission to issue guidance in pursuance of the public benefit requirement and to promote understanding and awareness of the operation of that benefit. So we need to be quite clear—and clearer than at present in the Bill—what is the public benefit of SNPFs. In the round—this is why I should like to see it especially covered in the Bill—advancement of the efficiency and welfare of the Armed Forces of the Crown should be seen not only as a charitable purpose but as a public benefit. It may not, however, be so clear to some in the commission and elsewhere why a particular SNPF devoted, for example, to sporting or recreational interests in one of the three services, should enjoy charitable status when other comparable activities in civil life may not.
	Indeed, without any specific reference to the Armed Forces, the commission may find that it is not easy to explain or distinguish public benefit in the case of a SNPF-supported activity, but not others. It would avoid later misunderstanding if there was greater clarity in the Bill about the existing and continuing charitable status of SNPFs. I should welcome Ministers' views about that, and will be looking to some amendments in Committee and on Report to clarify the position for the Armed Forces and SNPFs.
	My second concern relates to the issue of registration and submission of trustee names, annual accounts and the other regulatory requirements. Of course, I am all for the proper scrutiny and administration of any public or non-public fund. That is greatly in the interests of both the members and the trustees themselves. I have had personal experience of SNPFs in my service career as mess secretary, president of the mess committee and at more senior levels of responsibility. There is already in place within the three services sound accounting and auditing facilities and procedures, which must examine and supervise SNPFs—not least because those private funds must be kept totally separate from public funds. These in-service procedures must perforce continue.
	Although I welcome, as far as it goes, the inclusion in this version of the Bill of Clause 70, which introduces the five-year review of the Bill's operation when enacted, and of the provision inserted by Clause 9 to prevent the Home Secretary from changing the registration threshold for excepted charities before then, I have a related concern. The requirement in future for all excepted charities with annual gross incomes of more than £100,000—there are more than 2,000 of them—later reduced to cover lesser amounts, to duplicate the accounting and auditing already done within the services seems at odds with Clause 11(14).
	That clause provides a power for the Secretary of State to mitigate the risk of dual accounting regimes arising for charities that lose their exempt status and become subject to registration with, and regulation by, the Charity Commission. What will apply to formerly exempt charities should surely apply to SNPFs. Noble Lords will understand that many SNPF trustees are ex officio appointments. Individual trustees will change frequently as postings and detachments are very much the norm in today's expeditionary Armed Forces.
	Reporting trustee changes to the commission—the service authorities which instigate the moves will not need to be informed—could become quite burdensome for individuals who are under pressure to deploy at short notice and who may not have time for more than a cursory handover.
	On top of those bureaucratic complications, there will also be costs for the SNPFs which can be met only by the members and at the expense of their actual activities. I have heard that the initial registration and audit for RAF SNPFs with greater than an £100,000 annual gross income could be approaching £1 million. It would be considerably more for Army SNPFs which are generally the best endowed in the three services. These not inconsiderable sums were ignored in the regulatory impact assessment. I believe that the Government are wrong to claim that the Bill will not add a new and costly bureaucratic burden for the three services and, initially, over 2,000 of these SNPFs.
	This is a bad time to be adding burdens to the three services when they are so highly stretched on operational commitments world-wide and when their personnel strengths, and so the prime source of income for SNPFs, are being reduced.
	My third concern relates to the global spread of SNPFs. Not all of them could conceivably be considered to be domiciled in England or Wales. A ship may be home-ported in Scotland and a relevant SNPF could be subject to charity law there, but the ship's company may never be in port there, and some of its SNPF activity support might come from English or Welsh-based funds. I am not sure how Ministers expect ships' companies, or battalions and RAF squadrons on deployment overseas, to avoid confusion and to abide by the new registration and other procedures being thrust upon them by this Bill and similar, but not necessarily identical, legislation in Scotland and Northern Ireland and, one day, maybe even in Wales.
	Defence is rightly not a devolved issue, but to treat one important aspect of the efficiency and welfare of our Armed Forces as a devolved matter, when the rest is not, is a complication too far. New Clause 23 of the Bill helps, but the theory and attractions (such as they are) of pressing for a one-cap-fits-all approach is doing nothing to help our hard-pressed Armed Forces which are spread throughout the world. I urge Ministers not to be a slave to dogma. Instead they should be prepared, even anxious, to treat SNPFs as a special and unique case with further sensible adjustments to the Bill before us today.
	The Joint Committee singled out the large number of SNPFs as worthy of special consideration by the MoD and the Home Office. The Government response, saying that the Joint Committee's view was based on a false premise, served only to side-step the real points of practical concern that the Joint Committee and I have been attempting to draw to Ministers' attention. The issue is not about formal jurisdiction, but about inviting the Home Office and the MoD, in the words of the Joint Committee report, to,
	"explore ways of ensuring that these funds remain properly accounted for without bringing such a large number of small Armed Forces accounts within the remit of the Charity Commission"—
	accounts, not funds. I read that to mean remitting SNPF accounts which, thanks to SI 1056, are not remitted to Charity Commissioners today.
	In view of the likely Scottish legislation which will allow SNPFs in Scotland not to have to register, is it inconceivable that a similar approach should not be adopted for England and Wales, and if not, why not? That would resolve a glaring discrepancy in the legislation between the two administrations which is affecting the Armed Forces. Surely those who take an interest in the good work of charities and their proper governance would have no difficulty in accepting the special needs of SNPFs. Our Armed Forces deserve better consideration and treatment. In the words of the noble Lord, Lord Hodgson, "one more heave" may yet get fair treatment for the SNPFs.

Lord Borrie: My Lords, like other speakers I declare my interests in the charitable area, modest though they are. I am president of the Money Advice Trust, senior trustee of the Reform Club and patron of Public Concern at Work, sometimes known as the whistleblowers' charity.
	As others have said, many of us here today participated in the many days of work of the Grand Committee between January and March on the predecessor to this Bill, which fell, of course, when Parliament was dissolved in April. My noble friends Lady Scotland and Lord Bassam valiantly lasted through that period and withstood, very wisely, a number of criticisms of many detailed aspects of the Bill. Again, they take the burden of piloting this Bill and this very important reform—as everyone agrees it is—through this House.
	As the Minister has explained and as others have mentioned, there have been a number of changes, but I want to refer to one in particular, with all due deference and respect to the right reverend Prelate the Bishop of Southwell. Clause 2(3) refers to what is meant by "the advancement of religion" as a charitable purpose. The previous Bill provided no amplification on what was meant by "the advancement of religion", which had been listed in the preamble to the statute of Elizabeth I in 1601. Now, after so many centuries, the Government very boldly have attempted a definition. It is quite short so I shall read it. The Bill now says that,
	"'religion' includes—
	(i) a religion which involves belief in more than one god, and
	(ii) a religion which does not involve belief in a god".
	I am very glad to see some movement in government thinking and I tentatively welcome this unheralded change. In his closing speech to the Second Reading debate on the previous Bill on 20 January, my noble friend Lord Bassam seemed quite definite when he said:
	"To qualify as a religion under charity law, there has to be a belief in a supreme being and acts of worship of it".—[Official Report, 20/1/05; col. 963.]
	After several noble Lords on this side of the House had raised the matter of non-religious beliefs and agnosticism in Grand Committee on 3 February, my noble friend Lady Scotland said, in a letter to me and to others of 24 March—it was made public by being put in the Library of the House—that she could not find a way of incorporating in the Bill a reference to belief that would not let in wholly irrational beliefs.
	The new definition in the Bill now before us makes it clear that multi-deistic religions are within it, as are religious beliefs in non-deity. I understand that that is wider than the Charity Commission's current opinion of what is meant by "the advancement of religion", but the repetition, several times over, of the word "religion" in the new clause seems to me to emphasise that organisations promoting non-religious belief, or promoting a lack of faith, or promoting agnosticism are not within the phrase "the advancement of religion" or indeed within the spirit of that purpose. I suppose one could see Clause 2(4) as a broadening provision.
	It is a pity that the noble Lord, Lord Lester of Herne Hill, from the Liberal Democrat Benches is not here today. At Second Reading, on 20 January, he was concerned that the Bill as it then stood, prior to this new definition, might be contrary to Article 9 of the European Convention on Human Rights, which gives equal prominence to religion and belief. It does not allow discrimination between religious belief and non-religious belief such as humanism. When the noble Lord is able to attend our proceedings, I would be most interested to hear whether he is satisfied by the new definition. I should think that there must be some doubt because of the emphasis of "religion", which is repeated several times, in the new definition.
	One of the significant changes that this Bill makes to charities law, as did the one introduced in January, is to end the presumption that bodies established for the relief of poverty, the advancement of education or the advancement of religion are for the "public benefit" and therefore automatically charitable. However—and it is a big "however"—abolishing the old presumption does not by itself deprive of charitable status fee-paying schools that were registered as charities when the presumption existed, for example. That is explicitly set out, not in the Bill but in paragraph 26 of the Explanatory Notes.
	My noble friend Lord Hattersley may not grace this House with his presence very frequently but he wrote a telling and pertinent article in the Guardian of 23 May. It followed a lead given by someone whom I claim to be a very old friend in Labour Party circles, Christopher Price, a former Member of Parliament and former university vice-chancellor, who is concerned that if fee-paying schools continue to enjoy charitable status they will continue to receive tax exemption that amounts to a government subsidy. Mr Price proposes that such schools should retain their charitable status after the Bill becomes law only if they give something in return to the community generally; that is, a public benefit in return for what he calls public emoluments. Mr Price does not want to leave it to the Charity Commission to determine what "public benefit" means or to allow, for example, a school to qualify for charitable status just because it loans its football fields to the broader community for a few days a year. Mr Price wants Parliament to draft some specific, significant criteria to which the Charity Commission, in the time-honoured phrase with which we are familiar in constitutional law, must "have regard" when it chooses to confer charitable status. If I feel that there is any support for that, I may wish to table an amendment in due course.
	We have a fresh opportunity now to follow on from the debates initiated in Grand Committee by my noble friend Lord Wedderburn of Charlton, who is in his place and will speak later. I hope that the Government can respond positively, at any rate to the sort of proposition—setting out criteria in the Bill—which Mr Price and others have made.
	I wish to mention one detailed matter. I admit regret that I have to raise it as I did so in Grand Committee on behalf of the Higher Education Regulation Review Group, chaired by Dame Patricia Hodgson. It believes that if the Higher Education Funding Council is made the principal regulator for universities, universities may be involved in a fresh set of onerous and expensive processes. When I raised the matter previously, my noble friend Lord Bassam said that the Government were keen to keep "to an absolute minimum" any additional burden on universities as a result of the Bill. He added that keeping the burden to a minimum could include the use of existing auditors to assist compliance. Many in the university world—I am sorry that my noble friend Lady Warwick is not here today—may be glad to hear my noble friend Lord Bassam repeat those assurances today so that they are not lost or considered less relevant because they were part of an abortive discussion a few months ago on a Bill that is not precisely the same as this one.

Lord Swinfen: My Lords, I must also declare an interest in the Bill, as I am a patron of a number of charities. I have also founded and run a charity that provides, by means of telemedicine, medical consultant advice to hard-pressed doctors in the developing world and in post-conflict situations.
	I congratulate the Government, in drafting this Bill, on taking on board some of the criticisms of the earlier Bill. In particular, I refer to the new imposition on the Charity Commission that its regulation should be,
	"proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed".
	I also refer to the requirement on the Secretary of State to appoint a person to review the working of the Act within five years of its passage into law. That is all very sensible.
	However, I am not very happy with the Government in their failure so far to take on board some matters that I consider to be of even more importance. First, there is a significant gap of principle in the regulation of charities, which has historically been concerned only with the material assets of a charity and ignored the charity's people, whether they are assets, such as volunteers and donors, or liabilities in the form of beneficiaries. As charities exist for their beneficiaries, it is odd that charity law allows the regulators to ignore their interests.
	The Charity Commission has sometimes acted in a rather cavalier fashion towards a charity's people, and that should stop. Cases include Iran Aid, where the commission abandoned to starvation and death some 13,500 children in Iraq; the Hedley Roberts Trust, where the commission abandoned to blindness Indian children who worked on the salt pans by cutting off the supply of sunglasses; and the Protection of Animal Life Society, where the commission shut out the volunteers who were the lifeblood of that charity. I urge the Minister to reconsider that omission and table the Government's own amendment to require the Charity Commission to take proper account of a charity's people.
	Secondly, in Grand Committee in the previous Parliament, the Minister repeatedly told us that all public bodies such as the Charity Commission are required by law to act fairly, reasonably and proportionately and that therefore there is no need to include those words in the Bill. This new Bill introduces the requirement to act proportionately, but it does not include the requirement to act fairly or reasonably. In the Little Gidding Trust case, which I mentioned in Committee in the previous Parliament, the High Court, supported by the Court of Appeal, refused to consider the fairness or reasonableness of the Charity Commission's behaviour, even after the court had recognised that that was at the heart of the case. Thus the Minister's argument that "fair and reasonable" are already part of the law does not, as far as charities are concerned, hold water.
	The sums of money that can be lost to charities, trustees and their beneficiaries by unfair, unreasonable or disproportionate behaviour of the Charity Commission can be very substantial indeed. The Minister has given us "proportionate" in the new Bill. Will she please concede "fair and reasonable"? Unlike commerce, charities are founded on principles of moral behaviour. Charities and their trustees quite rightly expect nothing less than fairness and reasonableness from their regulator.
	I now turn to the lack of an effective appeal mechanism against the commission's decisions. At present, there are four appeal mechanisms available to charities and trustees who are dissatisfied with the decision of the commission. They are a Charity Commission internal review, the independent charity reviewer, the High Court and the Parliamentary Ombudsman. These are all so ineffective that the Cabinet Office report, Private Action, Public Benefit, described the Charity Commission as virtually unchallengeable in practice. The Government have accepted that criticism and the Bill, like its predecessor, proposes a charity appeals tribunal. So far, so good.
	But the charity appeal tribunal is to be permitted to consider only the legal decisions of the Charity Commission, not its administrative decisions. Thus a new charity that is pushing at the boundaries of what is charitable in law and falls foul of the commission when attempting to register, may use the tribunal to challenge the commission's decision. But an existing charity that has been the subject of a commission inquiry, and perhaps has a receiver and manager at a cost to the charity of hundreds of thousands of pounds, is to have no recourse to the tribunal if it feels that it has been treated unfairly, unreasonably or disproportionately.
	The Government have accepted that the present mechanisms do not work. The abuses of charities by the Charity Commission have been well documented in the Association for Charities' report, Power without Accountability. There can be no excuse for the Minister holding back on this issue. I believe that the Government have been sent a copy of the report. They have had plenty of time to read it, because it was sent to them before the Second Reading of the Bill in the previous Parliament.
	In Committee, the noble Lord, Lord Phillips of Sudbury, described this problem as,
	"an evil that needs addressing".
	He went on to say that the Charity Commission holds the view that,
	"the role of the independent complaints reviewer should be amended . . . given more teeth and more powers to award compensation".—[Official Report, 14/3/05; cols. GC 449–50.]
	I do not consider it likely that the commission will be allowed by the Treasury voluntarily to give the independent complaints reviewer the power to award substantial compensation for financial loss caused by the commission's occasional misbehaviour. It therefore follows that there must be a mechanism in this Bill if it is to deal with this evil.
	The Government may oppose such a clause because it has cost implications for the public purse. If any private citizen improperly harms another financially, he can expect to pay. There is no reason why the Government's regulator should, in practice, be above the law. In reality, I think that a practical mechanism of redress for abuse will assist the new management at the commission to change the culture there, and we shall see very few claims as a result.
	Our House is in the business of developing law that conforms to commonly held concepts of justice, knowing that otherwise it will rightly be despised by those whose actions the law is intended to confine. The courts and the Government support alternative dispute resolution procedures as a means of levelling the playing field between the citizen and the state. Without such a mechanism, this Bill may go on to deliver law, but it will fail to deliver justice.
	I now turn briefly to the suitor's fund, which was mentioned and supported by the noble Lord, Lord Phillips of Sudbury, and the noble Baroness, Lady Pitkeathley. Last year, the Charity Commission took it upon itself to reverse its traditional interpretation of charity law in the cases of Trafford Community Leisure Trust and Wigan Leisure and Culture Trust by allowing the registration of two charities to deliver local authority services. The fact that the commission can so casually change charity law so profoundly is causing considerable concern among charity lawyers. It is also causing considerable concern in the charity sector, which can see that it would be all too easy for most governmental services to be hived off into charities, thereby fundamentally changing and undermining the integrity of the concept of charities as independent bodies. The suitor's fund could be used to allow the courts to look at this.
	I now turn to the commission's statutory inquiries. They are an essential tool in the armoury of regulation but the commission has not always used them in accordance with the principles of good regulation. Too often, the commission inquiry reports have been one-sided affairs, sometimes presenting a picture that was literally unrecognisable by the subjects of the reports, and which entirely failed to recognise the real cost of the inquiry to the charity, trustees and others. Too often, inquiries have appeared to be self-justifying fishing expeditions, hoping to find some minor wrongdoing to justify the sometimes spurious claim that the charity's assets are under threat.
	My first suggestion to the Minister is that when the commission publishes an inquiry report it shall invite the charity, its trustees and all other affected parties to submit for publication with the report an appendix containing those parties' estimates of the costs of the inquiry to them, including the cost of consultants, lost time, lost assets, lost income and any other relevant costs.
	My second suggestion is that charities and other parties mentioned in inquiry reports should have the opportunity to respond to those reports in an appendix to be published with the commission's report. The commission's reputation for balanced reporting is seriously tarnished. This proposal will go some way towards assisting it to improve its reputation.
	My third suggestion on this subject concerns the draft reports produced by the independent complaints reviewer on complaints received about the Charity Commission's behaviour. Such draft reports are sent to the Charity Commission for comment, but are not sent to the complainant to whom they are shown only after incorporating the commission's amendments. This is not justice being seen to be done. It smacks of backroom deals and undermines confidence in the integrity of the independent complaints reviewer.
	Of course, the independent complaints reviewer is anything but independent. She is appointed and paid by the commission, which writes her remit. I urge her and the commission to amend her procedures and I urge the Minister to amend them for her, should the Government accept my proposal to put her role onto a statutory footing. I look forward to seeing a government amendment in Committee.
	I am delighted that the Government are going to change the name of the "receiver and manager" to "interim manager", but what about "interim trustee" when the managers are, in fact, acting as trustees where the trustees have been removed, and are not just managing the trust?
	I also suggest that the Charity Commission should in all cases pay the fees and expenses of any interim manager and any consultants appointed to assist him. This amendment runs counter to the arrangements for commercial companies, but the situation in charities is very different. The commission has shown itself to be careless with charity funds when appointing receivers and managers. This could make it think very seriously about whether to appoint an interim manager. For example, in the Voice of Methodism case it took more than six years to get rid of the receiver and manager who did relatively little in that time except collect his fees, which I am told were £100,000.
	In the current Cancer Care Foundation case the receiver and manager has already run up costs in excess of £600,000. I am told that they are likely to increase to more than £1 million. In that case, more than a year's work has not produced any evidence of significant wrongdoing in the charity, but the charity is facing a colossal bill caused by the commission's ineptitude. The commission's only legal authority for appointing a receiver and manager is to "protect charity assets". In this case, it has done the opposite: it appears to be wasting them.
	Before the election, the Minister said that,
	"the appointment of a receiver and manager generally happens when trustees are no longer in control of a charity".—[Official Report, 14/3/05; col. GC 445.]
	If that were always the case, the Minister's stance would be firmer. But in the Cancer Care Foundation case and the recently settled Kingsway International Christian Centre case the trustees were entirely in control of their charities and running them very well when the commission took them over at exorbitant cost to the charities.
	Finally—noble Lords will be glad that I am coming to an end—I return to the topic raised by other speakers. I refer to the statutory status of the Charity Commission. Many of your Lordships have expressed the view that the Charity Commission should be sufficiently independent of the Government that it cannot interfere with the matter of regulating individual charities.
	It is only a few years since we all saw the disgraceful spectacle of a Minister of the Crown publicly denouncing Iran Aid, a charity of the highest integrity, as merely a front for funding terrorism. Perhaps it was only coincidence that that was when the Iranian Government were demanding that this charity be closed because it organised aid for the orphans of political dissidents in Iran; perhaps it was only coincidence that the Government at that time was seeking closer relations with the Iranian Government because of the prospect of oil contracts; and perhaps it was only coincidence that the Charity Commission obediently opened an inquiry which found no evidence of support for terrorism, but which effectively destroyed the charity, to the delight of the Iranian Government.
	The existing non-ministerial basis of the commission leaves it vulnerable to back-door interference while making its actions unquestionable in Parliament. Only by putting the Charity Commission on a truly independent basis, free of the government of the day, will the reputation of charities, the Charity Commission and the Government be protected. I urge the Government to think again on this matter.

Baroness Howe of Idlicote: My Lords, I, too, declare an interest, having been involved with charities in one form or another for most of my adult life. I also apologise to your Lordships: due to a clash with a Select Committee meeting, I was unable to be here for as much of the debate as I would normally have wished. I shall try to concentrate on what are in my view the important issues.
	There is no doubt of the importance of the legislation, nor of the length of time, detailed scrutiny and public consultation that has gone into its preparation. That was surely the right approach, not only because of the length of time since the law governing this vital sector was last overhauled but because of the value of the sector to our whole British way of life. Add to that the increasing role played by charities—large and small—in helping governments of all persuasions to achieve their legislative programmes and the need to ensure that we get the right balance between freedom to innovate, which is a crucial ingredient for charities, and appropriate regulation, the case for getting the legislation right becomes overwhelming. It should also go without saying that our aim must be to achieve that with as little bureaucracy as possible.
	Having said that, I am one of those who wish that the Bill had managed to complete all its stages in the previous Parliament. By the time that Bill was before us, many of the suggestions of the pre-legislative committee of both Houses had been taken aboard. As we have already heard, in Committee in the House of Lords it was clear that Ministers had been further convinced by amendments and arguments advanced on a number of important issues. However, that was not to be.
	I, too, congratulate the Government on having further revised the Bill to reflect many, if not all, of the compelling arguments that were advanced in Committee. I mention specially two examples; namely, the strengthened independence—it may not be as perfect as the noble Lord, Lord Swinfen, would want it—given to the Charity Commission through one of the Bill's new provisions, which ensures that the commission is not to be subject to direction or control by Ministers, and the fact that the commission's annual report is to be laid directly before Parliament, not via a government department.
	There is also the use that the Charity Commission makes of its powers. It needs and is to have increased powers and resources, as well as additional responsibilities. However, as your Lordships will remember, there was considerable concern at some of the commission's past actions, which were felt by the Association of Charities and others to have been both wrong and an abuse of its powers and which also, sadly and perhaps more important, resulted in considerable damage to the image and the finances of the charities concerned.
	As the noble Lord, Lord Swinfen, has already said, an amendment requiring the Charity Commission to use its powers "fairly, proportionately and reasonably" was therefore, unsurprisingly, tabled last time but was rejected in this House by the Minister on the ground that that duty already existed in law. But the Government seem to have changed their mind.
	As we have heard, the revised Bill now incorporates a new paragraph, which was referred to by the Minister when she opened the debate. It requires the Charity Commission to have regard to the principles of best regulatory practice,
	"including the principles under which regulatory activities should be proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed".
	Of course, that will give some reassurance to charities, but I remain puzzled about why the new wording of the clause, now that it is accepted that it is needed, including as it does "proportionate", does not include—again, as the noble Lord, Lord Swinfen, said—the original amendment's two other words; that is, "fairly" and "reasonably". It is even more puzzling when one considers that the Charity Commission in its latest mission statement section on proportionate legislation, which was published in March this year, used all three words pegged firmly together.
	I would be grateful for the Minister's explanation on that point and, above all, reassurance that fairness and reasonableness will be part of what is expected from the Charity Commission in its dealings with charities. Remembering again that we are dealing with charities with limited funds, not huge businesses that can afford to test disagreements with a regulator in the courts, I certainly support the National Council of Voluntary Organisations' renewed suggestion for a suitors' fund—that has also been supported by other noble Lords, to be available for the appeal tribunal to draw on if the need arose to take a test case to a higher court.
	Another concern of the national council reinforces my view that, although it is important for the Charity Commission to give advice to charities on appropriate occasions, there should also be some more independent experts available to give advice—either the national council or another equally involved organisation—not least when the Charity Commission could find itself with a situation where a conflict of interests might exist. As I know from my Equal Opportunities Commission experience, the combined statutory duty of enforcing the law and promoting equal opportunities, on occasion, created difficulties. Surely it also makes sense to make statutory the existing role of the Independent Complaints Reviewer—a point put forward previously by the noble Lord, Lord Phillips, and mentioned by the noble Lord, Lord Swinfen—so that the Independent Complaints Reviewer has real power, if a situation requires it, to investigate the commission's behaviour and, where necessary, award proper compensation for a charity's financial loss.
	If those additional changes could be made, combined with the improved appeals procedure, which has been mentioned already, and, above all, the welcome establishment of a Charity Appeal Tribunal, an important and mutually respected way forward for charities and the Charity Commission will have been achieved.
	My last point concerns the Bill's public interest test. That fundamental principle has been broadly accepted as the qualification for recognition of charitable status. Such a qualification is doubly important for charities where high fee paying is involved—such as independent schools and universities—and views have been expressed that a higher test of public benefit should be applied in such cases. The noble Lord, Lord Borrie, who dealt with one of the concerns of the university sector, said, rightly, that the added requirement should not include more bureaucratic processes. I join the noble Lord in hoping that when the Minister sums up the debate he will give that reassurance firmly again.
	The independent schools—some 80 per cent of which fall into this category—are broadly supportive of what is proposed and confident about how the proposed changes will affect them. In any event, more and more of them are involved—with government encouragement, I add—in teaching partnership schemes with LEA schools and/or provide some other fairly visible public benefit in their local community. It also needs to be remembered that the parents who pay those fees save the taxpayer the cost of educating their children. I believe that the Independent Schools Council puts the benefit/gain ratio that for every £1 of tax break gained, £3 is returned.
	During the previous Bill's progress, the Government made it clear that they had no intention of trying to remove the charity status that such schools enjoyed, so long as each could justify their inclusion. To that end, there is to be no attempt at a definition of "public benefit" in the Bill—though, as we have already heard, the Charity Commission, after appropriate consultation, will set out how it intends to interpret its responsibilities in that respect.
	The revised Bill contains an amendment—again originally proposed in your Lordships' House by the noble Lord, Lord Phillips—requiring trustees of charities to have regard to the guidance produced by the Charity Commission. That certainly appears to make sense. Beyond that, however, we should take great care.
	As your Lordships know, there are those—the noble Lord, Lord Borrie, may be one; I was not certain—who wish to abolish any form of independent education and, to that end, remove the charitable status of many such schools. Thus far, the Government have rightly resisted that pressure. It would be helpful to have the Minister's clear assurance that that position will be firmly maintained. I have no doubt that others who are to follow in the debate may have other views.
	There are, of course, other aspects of the Bill that will need to be more fully discussed. I look forward—as I am sure will other noble Lords—to what I believe and hope will be relatively short Committee, Report and Third Reading stages of the Bill.

Baroness Barker: My Lords, I have not previously troubled your Lordships' House with my views on this subject. To do so at this late stage one must have a very good reason. I believe that I do in that I can speak on these matters from a perspective that has not been heard during all the previous debates, eminent and knowledgeable though they have undoubtedly been.
	I, too, join the noble Lord, Lord Hodgson of Astley Abbotts, in thanking the House authorities for producing the new bound volume of debates. It will be right up there on my bookshelf alongside my battered copy of the handbook to charitable status written by the then quite common A. Phillips Esq.
	I begin by declaring an interest and also making a confession. I have spent all my working life working for charities. More than that, my present role—which I have held for some years—with Age Concern is as an adviser to boards of trustees and managers on, among other things, charity law. Having said that, I have not spoken to my colleagues in Age Concern—I have not discussed the matter with them at all—and some of the matters to which I shall refer today are not based on my experiences with Age Concern but with other charities.
	I have spent a long time trying to help trustees wrestle with charity law. I was not able to take part in the previous discussions because I was engaged on other business in the House, but this time I have sat down and looked at the Bill with the eye of a practitioner and from the position of someone who will have the joy of explaining it to the trustees of small organisations and trying to help them to make it work.
	I welcome a great deal of what is in the Bill and the central thrust behind it, which is to modernise the structures for charities and to make them more workable. When I was considering the issue, an analogy with footwear came to mind. Up until now in the charity world we have had unincorporated associations, which are rather like battered old slippers; they are very comfortable but not quite what we want. We have had companies limited by guarantees, which are rather like clogs; they are very hard-working and durable but they do not fit exactly with what we need them to do. Now we have CIOs, which some of us are led to believe will be the high-performance, all-terrain shoe that we need in order to do our business. I believe that they will be of great benefit to many organisations but I have one or two questions about them.
	I agree very much with the statement made by my noble friend Lord Phillips about the Charity Commission on the previous Second Reading. He said that many of the failures of the Charity Commission were not because of the commission itself or its structure but because of deficiencies in staffing. That is true. I have worked with organisations which have had the deeply frustrating experience of asking exactly the same question of the commission and having completely contradictory answers coming back to them.
	I have also looked with great care at what is proposed by the Government for changes in the structure of the commission. I again agree with my noble friend Lord Phillips that the test of the changes will be the extent to which the commission works for small charities. They are the people who need it most and who form the bulk of the sector.
	There is still something in what has been proposed which will slightly handicap the Charity Commission in what it is trying to do. It will still have an investigative—almost policing—type role within the sector. No matter how hard the Charity Commission tries—and it does try; as someone who spends many a happy hour looking at the investigations section of the Charity Commission's website and other things I can say that its advice is extraordinary—still it is always seen as having this policing role. Smaller organisations which are in need of support but which desperately fear getting tangled up in major issues, will still find it quite hard to relate, perhaps informally, to the commission.
	I have looked through all that has been written and wonder whether there is not a case for establishing some kind of users' panel or user involvement group to help with those small operations, consisting not of professionals in the charity world but of trustees and perhaps, as the noble Lord, Lord Swinfen, said, of members and users of charities.
	I agree with my noble friend Lord Phillips that the Charity Appeal Tribunal runs the risk of becoming like employment tribunals. They were initially meant to be extremely informal but it would now be highly unusual for anybody to appear in front of one without the aid of a solicitor, and I do not think that many small charities could do that.
	I listened very carefully to what the noble Baroness, Lady Scotland, said on trustee indemnity insurance. I am glad that the Government are looking at this; it is perhaps the number one issue raised by trustees of charities, particularly sizeable ones. I tend to belong to the sceptical school of thought when it comes to trustee indemnity insurance. A great many such policies are not worth the paper they are written on and do not cover people for very much at all. I am happy to see the proposals in the Bill as long as the clear message is sent to trustees that the best form of indemnity insurance is good practice, which will always outweigh any kind of insurance cover.
	I do not wish to enter into arguments on public interest, which have already been covered substantially. I simply say that when a resolution is found, as it will be by the end of these discussions, I hope that we do not lose sight of the fact that a great many small charities are founded to assist small defined groups of people and sometimes to enable them to participate in self-help activities. I hope that whatever the definition of public interest is, it will mean that such organisations do not have their very essence removed if they pursue their ends in a charitable fashion.
	I greatly welcome the changes to the cy-près schemes. However, in my experience, the biggest problems arise when buildings are involved and a local authority is somewhere in the background. Sometimes buildings are handed out and given to local authorities. I hope that when the new cy-près schemes come into play, local authorities in particular will be appraised of the new rules so that they can help charities work their way through them.
	The last time the Minister introduced the Bill, she said that the Government had decided not to deal with the issue of charities and trading. I agree with her. I agree that, for the reasons she gave, charities which pursue non-charitable trading should do so on the same basis as any commercial enterprise. However, I agree with the comments of my noble friend Lord Dholakia that to operate trading companies is an enormous and cumbersome business for charities. I agree with the noble Baroness that changes in this area are perhaps best done through changes to taxation law. However, I still think that for transparency and openness in accounting, there is still an issue that needs to be considered, particularly the operation of subsidiary trading companies.
	The noble Lord, Lord Hodgson of Astley Abbotts, reeled off the different levels at which one has to have different forms of accounts. I was once sad enough to analyse the accounts of about 200 charities of varying size, from tiny organisations through to ones with multi-million pound incomes. It was a fascinating experience. Overall, the standard of accounting was extremely good.
	The most fascinating thing was that the standard of the accounts bore no relation to the size of the organisation, with one exception. In the accounts of very tiny organisations, one could see exactly what was going on—where the money was coming from and where it was being spent. That applied to the larger organisations as well. But there was a band of organisations with incomes of about £200,000 to £250,000, which had clearly had an IFA rather than a full audit. They had gone to the only accountant practising in the small place they lived who clearly had no idea about charity accounting. Some had profit and loss accounts rather than SORP accounts. Remarkably, one had a set of profit and loss accounts that did not add up.
	It became quite clear that the standard of charity accounting has to be taken into consideration when looking at where to set the levels. There are all sorts of ways in which you can define at what level the charity should be accountable—the level at which it begins to employ staff, for example. We could go round and round; perhaps the GuideStar programme will give us better information.
	The noble Baroness said that it was the Government's intention to review those limits within a year. I suggest that that review would be best timed to coincide with the introduction of the new SORP. Most of the accounts under the new SORP will not arrive for some time after that. Perhaps it might be in the Government's interests to get better information by delaying that ever so slightly. I recommend that access to charity accountants is also included in the analysis.
	Schedule 6, which sets out what has to be included in the constitution of a charitable incorporated organisation, does not say that a designated area of benefit has to be included. I know this is an anorak-y question, but could the Minister tell me whether that is because the words "charitable purposes" or the "purposes of the charity" are inclusive and therefore the area of benefit should be spelt out? That is a particularly important issue for those charities organised along federated lines.
	I know that some charities still have quill pens, but some have e-mail. Some of us are about to try governing documents where it is recognised that we work electronically. Would it be possible to reflect that in the regulations if not the legislation? For example, charities could have virtual meetings rather than always having to do things by post. It is a matter I am just about to bring before the commission on behalf of one of the organisations with which I work.
	Finally, as others have said, the Bill is very nearly there. It is an extremely good basis upon to which to work. Speaking as someone who will probably have to implement it over the next 20 years until we have the next lot of charity legislation, I hope that noble Lords will support it. Those of us who work in the charity sector do so because one can have the freedom to think, to be creative and to bring about real change for individuals, unencumbered by great structures. I hope that noble Lords will allow us to do that and to organise our business properly and professionally.

Lord Best: My Lords, I declare my interests as the chief executive of a major charity, the Joseph Rowntree Foundation, and a charitable housing association, the Joseph Rowntree Housing trust. I am also a member of the Advisory Council of the National Council for Voluntary Organisations—which has done so much to take forward the debate on public benefit—and chairman of the Giving Forum, set up by the Charities Aid Foundation to boost philanthropy, corporate and individual giving of money and time.
	I was on the Joint Committee that considered the original Bill, and have regarded it as a privilege to participate in the process of this legislation throughout its course to date. Clearly, it reaches its second Second Reading in very good shape, with only a handful of outstanding points to resolve. The whole process has been a model of co-operation and consensus, and it seems certain that the resulting Charities Act will be extremely valuable.
	In much of the discussion on the Bill to date, one can detect an inevitable tension between independence and regulation, between freedom for charities to do their own thing and to have control over their affairs to prevent abuses or loss of reputation. In particular, charities that accept the bulk of their funding from statutory sources always face the danger of a culture of contracts and compliance, undermining the value of a truly independent input to solving social problems. Achieving the balance to maximise the gains from a sector that is outside the profit-motivated private sector and outside the necessarily constrained public sector will require vigilance and even the occasional campaign from those of us who have spent their lives in the charity-voluntary-community third sector.
	Perhaps I may take a few moments to explain my support for the Bill's provisions on "public benefit", but also my support for the earlier amendments relating to this issue of the noble Lord, Lord Phillips of Sudbury. The best illustration of the public benefit debate, and the most controversial ingredient in the Bill, relates to the treatment of independent schools that charge high fees, but are registered as charities.
	I start with a point of principle. It follows from a commitment to the not-for-profit sector that I support the concept of provision of education that is independent both of the state and the profit-making private sector. Linked to this concept of a third way of doing things, I would suggest that this might be the moment to drop the term "public school", which so inaccurately describes these bodies. All independent schools are clearly distinct from the public sector in their governance and funding. There are schools in the private sector that exist to make a profit for shareholders, and their numbers are growing. But there are also the independent schools that are charities, with a status that lies between the private and public sectors in that middle ground of the third sector, where pursuit of social objectives is a key component. Charitable status means an obligation to reach out to the community outside the school gates, offering bursaries to pupils from less affluent families and joining in partnerships with local education authorities.
	Increasingly, it seems that the key distinction in the provision of education outside the public maintained sector will be between the voluntary, charitable bodies and the commercial providers of education, such as the large Cognita company that has been established by the former Chief Inspector of Schools, Chris Woodhead, which are not charities and do not accept the constraints that charitable status brings. These private sector agencies must place the maximising of rewards for shareholders as their key objective. The two largest of these companies have recently raised several hundred million pounds to invest in what they see as a lucrative market. They can turn their backs on the ideas of bursaries for pupils from low-income households or of making available their facilities for children from other schools or of working in partnerships with the maintained sector. Indeed, I gather that Mr Woodhead is on record as saying that these bodies should not co-operate with the maintained sector. This breed of profit-making schools runs the danger of reinforcing a divisive segregation of education between richer and poorer, private and public, with a philosophy that "never the twain shall meet". They highlight the advantages of a third sector that embraces the obligations of charitable status.
	Jonathan Shephard of the Independent Schools Council has said:
	"There is the very serious point that charitable status underpins the social purpose of our schools and integrates them into society. There is a real risk that purely commercial schools will concentrate on fee-paying parents and ignore the local community".
	Noble Lords should remember that all the capital assets, future capital gains and any surpluses achieved by charities are locked into charitable purposes in perpetuity. This is in stark contrast to the profit-making sector. Even opponents of independent schools would, I feel sure, prefer schools to be run by registered, regulated charities than by profit-making companies.
	Clearly, in return for the concessions and status that independent schools obtain as charities, they must accept their wider social purposes. This is where the Charities Bill, and the Charity Commission, come in. Surveys indicate that the general public find it hard to understand why organisations that charge high fees for entry should obtain the benefits of a charity. The answer in the Bill is that the commission will make sure that these schools will indeed be providing public benefit, marking them out as different from commercial providers. This can no longer be a matter of reliance on past case law that deemed education in itself to be a charitable activity. That was spelt out in the concordat of understanding between the Home Office and the Charity Commission, reached as a result of the discussions in the Joint Committee. It stated:
	"An organisation which wholly excluded poor people from any benefits, direct or indirect, would not be established nor operate for the public benefit and therefore would not be a charity".
	Some of the schools in the independent sector might feel discomfort in satisfying the public benefit requirements, but—and not least—if popular perceptions are to be respected and, to quote the relevant Minister in the other place, public confidence in the "charity brand" is to be maintained, the Charity Commission must ensure that, true its historic and traditional role, those schools accept the wider responsibilities that fully justify their relief from rates and taxes. Universities have been required to take access more seriously and to ensure that the obstacles facing those from families on lower incomes do not prevent them benefiting from higher education. If all the charitable independent schools follow the examples of the better schools in widening access and playing their part on the local education scene, their privileges as charities should be assured.
	I conclude. This is excellent legislation which has already received a huge amount of detailed scrutiny. The potentially contentious subject of bodies with charitable status charging high fees, particularly schools, should not slow progress. Perhaps with a little tweak from the noble Lord, Lord Phillips of Sudbury, this ingredient in the Bill should be seen as important and helpful. In return for their privileges as a charity, these not-public, not-commercial schools will be held to account for their important responsibilities to wider society, thereby enhancing the reputation and the underlying value of charitable enterprise. I look forward to the safe and speedy passage of this important Bill through all its next stages.

Lord Wedderburn of Charlton: My Lords, this admirable Bill, much of which, as the noble Lord, Lord Phillips, said, is rather different from the previous Bill, may, like Caesar's Gaul, perhaps be described as falling into three parts. One part covers the new institutions, including the Charity Appeal Tribunal; other parts modernise the administration of charities, something that colleagues in the field have long sought. I shall address the first part of the Bill, which redefines "charitable purpose". It is the shortest part but is perhaps the most important for social policy.
	The Government have set out, at last, for the first time, a list of charitable purposes that is longer than the Statute of Elizabeth of 1601. They have also taken the welcome step of requiring positive proof of public benefit, which will focus attention generally on such questions as the meaning of "the public" or maybe "a section of the public".
	In such matters, any charities Bill necessarily places the independent Charity Commission—I join those who welcome a clear statement of its independence—right in the middle of policy of deep social importance, not least because, contrary to the suggestion of the Joint Committee in December 2004—I do not think that anybody has mentioned it—it was the Government's choice to retain as coterminous the boundaries of charitable purpose and tax advantage. That is the root of the problems that, for social purpose, charity law sets us. In thinking of that area, one hopes that access to the new tribunal will be by a flexible and easy procedure and will not be made too expensive.
	Two special issues of public policy, which have been mentioned by my noble friend Lord Borrie—I hope not to repeat exactly anything that he said—are, first, the issue of fee-paying institutions. Among them are schools of various kinds, as the noble Lord, Lord Best, reminds us, which in our idiosyncratic education system educate 7 per cent of pupils, with such dire effects on social cohesion in English society—and I emphasise the word "English". I shall leave that matter for later stages of the Bill, but there is a lot more to be said. The second issue the purpose of the advancement of religion, which the Bill leaves without express mention of non-religious purposes or belief. Those are more than Committee points; they go to the heart of the Bill, seen in general terms in its impact on society—to what the noble Lord, Lord Dahrendorf, who is to follow me in this debate, called in our last debates the creative chaos that affects civil society so importantly.
	I preface my four brief points by saying clearly that I have the utmost respect and amity for my many friends and colleagues who are devout followers of one religion or another. Indeed, I believe that some of the points that I am going to make will be shared by some occupants of Benches not too far in front of me. The definition of "religion" is clear in only one respect, as Lord Reid remarked judicially in 1949, in that it includes all religion. Exactly what is a religion is still undefined, except that in this Bill it is said to include belief in more than one god or in no god at all. In passing, I mention that the courts have always seen that religion must involve some form of worship.
	The fact that no mention is made of non-religious belief, on a parity and equality with religious purposes, is something on which the British Humanist Association and the National Secular Society have in vain asked for reform for many years. As the Joint Committee pointed out, the Bill, as it stands, is not in conformity with our obligations under the European Convention on Human Rights or, therefore, our own Human Rights Act—or indeed, with many other international norms, from the UN International Covenant on Civil and Political Rights to various resolutions of the United Nations assembly. Nor would it have been in conformity, for those who still hanker after it, with the Charter of Fundamental Rights in that famous treaty, which is now marcescent, which would have established freedom of thought, conscience, belief and religion as goals for the Union.
	Our domestic legislation has also been modernised to include non-religious belief on a par, such as in the Communications Act 2003, the recent Employment Equality (Religion or Belief) Regulations 2003 and, now, the Equality Bill—a Bill that was introduced on the same day as the Charities Bill in your Lordships' House. That Bill makes illegal any requirement, condition or practice putting a person at a disadvantage on the grounds of religion or belief. With the two Bills coming on the same day, one wonders whether authority is not suffering from some strange schizophrenic dysfunction. We shall come to that matter in Committee, but it must be said immediately about the structure of this Bill as against that of the Equality Bill.
	This Government, like all governments that have addressed the point—in so far as they have addressed it—have said that in practice humanists and the like will suffer no disadvantage because their purposes will always be accepted as charitable under what has been called the "ragbag" clause. It is now called Clause 2(4), and it encompasses purposes which are,
	"analogous to, or within the spirit of",
	a purpose expressly set out, such as religion. I hope that we can pass on from this argument, because that is no answer—for two reasons.
	First, the National Secular Society and British Humanist Association have pointed out that non-religious groups have in the past encountered difficulty in registering. Secondly, and more seriously, the argument that non-religious belief need not be expressly protected is itself an infringement of human rights, leaving non-religious funds to the mercy of an uncertain "ragbag" clause, with the test of analogy with religion in particular. The adherents of the relevant societies aver that their beliefs are not analogous to religion, in the sense, as Professor Richard Dawkins has said, that they are not based on a religious belief, which may be said to rest on either revelation, tradition or authority. One might add that if non-religious beliefs are always to be included as analogous to religion—if we are given some Pepper v Hart assurance from the Minister on that—it would seem strange that that dark secret should not be expressly included in the Bill.
	I do not believe that parliamentary draftsmen, adequately instructed, are unable in the exercise of their expert craft to supply a suitably deft word or phrase to that purpose in our flexible language. As the noble Lord, Lord Dahrendorf, is following me, I am not too happy to make this point now—but I shall: that is the answer to those who say that the English language contains no word or phrase equivalent to Weltanschauung.
	My third points relates to the fact that the matter went further on 24 March, with the letter to which my noble friend Lord Borrie referred, which my noble friend the Minister kindly sent to us, with a copy put in the Library. It said that they had not found a way in which to incorporate a reference to belief that would not let in wholly irrational beliefs. But what the Government think is rational or irrational is neither here nor there. If it were, one might ask, with respect, whether the same test of irrationality or rationality was to be applied to other things, including religious beliefs. There are people I know who are very religious who would accept that some of the areas of their belief are not wholly rational. That is not a criticism but a statement. It is not a function of government to test irrational belief.
	It was also suggested that the Charity Commissioners would be in an impossible position, because they would have to ask whether there was a,
	"definition of belief in common law. There is no definition".
	That is correct—there is no definition of belief in common law, but Parliament trumps the common law and, when the common law falls unjustly on citizens, Parliament reforms it. That is what we do—that is why we are here, and that is what the Bill should do with regard to non-religious belief.
	The British Humanist Association was also cited as touching on the proposition that the term belief will inevitably be given a careful scope here, because what is at stake is,
	"a privileged position and a degree of relief from taxation".
	That is correct; the association referred to such a point—but it was part of the argument that it wished to be included, not excluded. The Government really cannot rely on that kind of argument.
	So there is new ground to cover. The ground that was covered under the old Bill is now overtaken by the new formulations. As my noble friend Lord Borrie correctly pointed out, those include a new area in which the word "religion" is included.
	I think that we can deal with the matter in Committee fairly quickly, but those who say that all the arguments were covered on the old Bill do not notice sufficiently that there are new provisions here and that new arguments are opened up, not least by my noble friend the Minister's letter. However, I believe that we shall have constructive discussions in Committee and that we will bring the Bill rapidly into accord—I hope—with human rights obligations, make the overall pattern of our laws into a rather less schizoid pattern, and release the Bill from what are in fact a number of antique assumptions; and then take it forward to assist those who actually and so importantly administer the charity area, for which I believe the Bill marks a major step forward.

Baroness McIntosh of Hudnall: My Lords, I remind the House that I was a member of the Joint Committee that scrutinised this Bill in draft last year. I also declare an interest as a trustee of a number of charities including the Almeida Theatre, the National Opera Studio, Southbank Sinfonia and Welsh National Opera and as a former employee of others including the Royal Shakespeare Company and the Royal National Theatre. If noble Lords detect a certain bias in this, they are certainly not wrong.
	Like other noble Lords who have spoken today I contributed to the Second Reading debate when an earlier version of this Bill was introduced, and I also tried—but I am afraid not as successfully as some colleagues—to stay in touch with the subsequent deliberations of the Grand Committee. However, I should like to pay tribute to the work done at that stage by my noble friends Lady Scotland and Lord Bassam, work which was rigorously but I think always courteously tested by the contributions of, in particular, the noble Lords, Lord Hodgson of Astley Abbotts and Lord Phillips of Sudbury. I am delighted to see that all four have their shoulders back to the same wheel now that we are setting the great work in motion again. I should like to say that as a result of their earlier efforts I agree with all those who have said that the Bill we have before us now is significantly improved, even from what was—as my noble friend Lady Pitkeathley observed earlier—a pretty good Bill to start with.
	So I think there is a great deal that we can feel very positive about. One of the benefits of being the tail-end Charlie, which falls to me today, before the more eminent contributions of the winders-up, is that if you have heard everything you want to hear said in the debate, you can afford to say very little more. I am sure that noble Lords will be grateful if I follow the intention of the noble Baroness, Lady Scotland, to provide pleasure and not irritation. If I cannot provide pleasure, I shall try to provide minimum irritation.
	I absolutely welcome the Bill which is needed. During the deliberations that have taken place on it in the past six months and, indeed, before that in the scrutiny committee, we have seen the huge support and great deal of good that it can bring to the sector which it is intended to regulate.
	I particularly welcome the introduction of a public benefit test and the expansion of charitable purposes which the Bill proposes. These issues have been extensively discussed by other Members of your Lordships' House during the debate and I will simply say that I welcome them. It is, however, still the case that the effectiveness of these proposals, once they are enacted, will depend upon the ability of the Charity Commission to develop rigorous, transparent and fair systems for putting into practice the new powers that it will have. I draw particular attention once again, as other noble Lords have done, to the sensitivity of applying the public benefit test to charities that charge for their services—a group which is far more diverse than might be imagined from the controversy which inevitably surrounds the status of public schools and hospitals, and one which includes inter alia many of the most important cultural institutions, large and small, in the land.
	The noble Baroness, Lady Barker, and the noble Lord, Lord Dahrendorf—he is no longer in his place—referred to small charities. They referred to the possibility that small charities might also have as it were small publics. The importance of applying a public benefit test in a way which takes account of the fact that although a public may be small it is neither insignificant nor—I see the noble Lord, Lord Dahrendorf, has re-entered the Chamber—as the noble Lord, Lord Dahrendorf, put it, irrelevant, needs to be very carefully borne in mind.
	I would be very keen to hear from the Minister when he replies whether he is confident that the Charity Commission will be adequately resourced—I mean resourced in the broadest sense—to carry out its new duties so as to ensure that no inadvertent damage is done to a vitally important group of charitable enterprises.
	Finally, I return briefly to a point which, as the noble Lord, Lord Hodgson of Astley Abbotts, kindly noted, I and others raised at the earlier Second Reading and in Committee; that is, the question of the independence from government of the Charity Commission. Although the present Bill still states at Clause 6(1A)(3) that,
	"The functions of the Commission shall be performed on behalf of the Crown",
	I note with great satisfaction that a new subsection (1A)(4) has appeared to the effect that,
	"In the exercise of its functions the Commission shall not be subject to the direction or control of any Minister of the Crown or other government department".
	Hoorah!—a listening Government, indeed. That is extremely welcome.
	The noble Lord, Lord Hodgson, raised a worry about the unchanged provision in Schedule 1 for the Charity Commission to secure departmental approval in its recruitment processes. I understand that worry so I hope we can be assured that that power will be exercised with a suitably light touch and that the commission will be encouraged and enabled to seek the best and most able people to fulfil its very difficult and extended remit and that there will be enough of them to do the job properly.
	That said, I welcome the Bill back. Like others, I hope that this time we shall see it reach the statute book speedily and that it will be unimpeded by anything other than the usual vigorous debate.

Lord Bassam of Brighton: My Lords, I have listened with more than usual interest to this afternoon's deliberations on the Bill, and I have been most impressed, as I was last time, with the breadth of contributions.
	Before I get into the meat of my response, I put on record my sadness at the passing of Baroness Blatch. She was a doughty performer at the Dispatch Box, someone who engendered respect, who always put her point of view forcibly and who researched her position with great integrity. She did not always please everyone on all sides of your Lordships' House, with the strength of her commentary and her observation. We in politics miss Baroness Blatch, and we mourn her passing for very good reason. She was a public servant, and she acted in what she rightly believed to be the public interest at all times. We regret her passing for that and for many other more personal reasons.
	When I was musing over what the shape of the debate might be this afternoon, I thought that there was some risk of a déjà-vu Second Reading being somewhat dull. Having listened to the last three or so hours of debate, your Lordships' House has, as ever, frustrated that potential, because it has been a most enlivening and broad debate. It bodes well for what everyone hopes will be a swift but fair consideration of the Bill in Committee. There have been many words of praise for the Bill this afternoon, more than there were last time. That is because the Bill has improved since we first set about the task in Committee earlier this year of looking in detail at the Bill and its contents.
	The noble Lord, Lord Best, described it as "an excellent Bill". The noble Lord, Lord Wedderburn, described it as "an admirable Bill". The noble Baroness, Lady Pitkeathley, said that we should "celebrate its improvement", and so it went on. The noble Baroness, Lady Seccombe, said that it was a "stronger and better Bill" for being produced in the way in which it has been. I have no doubt that all those comments are absolutely true. It was described as a "nearly there Bill" and a "one more heave Bill". The noble Lord, Lord Hodgson, was probably closest in his kind words because we are just one more heave away from getting what we all want.
	The debate took some expected turns. We had a great deal of consideration of the public benefit test, which is right, and that will clearly be an important debate in the later stages. The noble Lord, Lord Phillips, gave full voice to that. The noble Lord, Lord Sainsbury of Preston Candover, rightly focused, as he did before, on the burden of regulation and the importance of there being an effective and businesslike review when the Bill is reviewed. He made a particularly good case for that. The noble and gallant Lord, Lord Craig of Radley, as one would expect, focused on the service non-public fund charities and their status and the importance of recognising them. Clearly, that will be an issue.
	The issue of religious definition was raised from a humanist perspective by the noble Lord, Lord Wedderburn, and from a broader view by the noble Lord, Lord Borrie. We had a trenchant and carefully argued analysis of the Charity Commission and its doings and wrongdoings from the perspective of the noble Lord, Lord Swinfen. The noble Baroness, Lady McIntosh of Hudnall, was right to say that we ought to look more broadly at the impact of the public benefit test so far as the arts and the cultural sector are concerned and ensure that our debates and concerns there are broadened rather than narrowed in Committee. The right reverend Prelate the Bishop of Southwell raised, as we would expect, the concerns of religious charities—particularly the smaller ones—and the regulatory burden that the Bill places on them.
	I was delighted, too, that the noble Baroness, Lady Pitkeathley, raised the importance of philanthropy and generating more public support and interest in it. That was very helpful.

Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for his intervention.
	Many points were raised and questions asked during the debate. It is worth putting on record that when the Bill was first considered, we as the Government were tabling some 160 amendments on Report. They were in large measure, as has been acknowledged this afternoon, a response to proper concerns to improve the quality of the legislation.
	We in this House benefit from the wealth of expertise of the charitable sector. All those who contributed to the debate this afternoon correctly declared their interest, involvement and expertise. I know that we shall benefit from that when we get into the detail. As ever, I am impressed by the commitment and enthusiasm for the thriving charitable sector and its important role in civic society.
	The noble Lord, Lord Dahrendorf, made his usual point about the need for creative chaos and the charitable sector's role in that. Everyone acknowledges the value of an independent view and approach to service provision and the need to provoke an important debate within civil society about its role.
	I shall deal with some of the questions that were raised. I apologise in advance for those that I cannot cover, but we shall have the benefit of time in Committee to discuss some of those issues again, as has happened in the past.
	The noble Lord, Lord Hodgson, opened by setting out his stall of concern, and focused, as expected, on the independence of the Charity Commission. That was reflected in contributions from all sides of your Lordships' House. It is worth saying that while we explored those matters fully in Committee, we have moved as far as we rightly can in the circumstances to enshrine the independence of the Charity Commission in legislation. The debates have focused on that helpfully.
	We do not believe that a viable alternative has yet been shown to the commission's current status as a non-ministerial department. The Bill provides for the issues to be explored, and we think that the independent review that is to take place after Royal Assent could spend some useful time focusing on that issue. As yet, we are unconvinced that there is any further direction that we can take that would do more than we have already done in bringing the Bill forward a second time to enshrine and guarantee the independence of the commission.
	The noble Lord, Lord Hodgson, focused also on the requirement that the commission should facilitate innovation within the charitable sector. We agree with that, and the commission already has an objective to promote the effective use of charitable funds. That could encompass the encouragement of innovation where appropriate, but we do not think that there is any magic in innovation for its own sake.
	The noble Lords, Lord Hodgson and Lord Phillips, focused on the definition of religion, and the noble Lord, Lord Phillips, asked why we should not follow the Australian and New Zealand model and the language that they use in their legislation. We believe that the Australian definition which refers to,
	"belief in a supernatural Being, Thing or Principle",
	goes much wider than the definition that we propose. It potentially includes belief of systems that are outside the general understanding of what a religion might be. The Bill allows non-religious belief systems, such as those promoting moral and spiritual welfare to be charitable by another route. We think that that all-encompassing approach probably satisfies the demands and interests of most of those organisations seeking charitable status.
	The noble Lord, Lord Hodgson, raised the issue of financial thresholds. We are happy to review those limits, which can be changed, as I explained in Committee the first time round, by secondary legislation. We think that that will probably need some further consolidation. The limits are fair and reasonable as they sit, and it is inappropriate to make those changes in the Bill. It is best that they are given some further detailed consideration outside the legislation.
	The noble Lord, Lord Hodgson, referred to local authorities refusing to allow certain collections, and cited the Alexandra Rose Day collection. The Bill introduces a new licensing regime, and decisions on organisational eligibility to collect will be for the Charity Commission, not local authorities. That will remove the current inconsistencies and ensure that charities are not discriminated against on that basis.
	The noble Lord also talked about the need to update plans for self-regulation fund raising. Broadly we welcome the work of the sector, particularly the Institute of Fundraising and developing the proposals for self-regulation. We published a consultation indication of the criteria for considering and judging the success or failure of the scheme. That consultation closes on 17 June, and we shall make an announcement shortly afterwards.
	The noble Lord, Lord Hodgson, referred to the Attorney-General and the Charity Commission and the need to have power to refer matters to the Charity Commission Tribunal. We are considering that, and obviously we shall announce the fruits of our consideration to your Lordships in due course.
	The noble Lord, Lord Phillips, was very constructive and as helpful as ever. I defer to him in all matters relating to charities because of his wisdom, knowledge, background and experience in charitable law. The noble Lord focused, understandably, on the public benefit test requirement, and many other noble Lords contributed to that debate.
	The Bill deliberately does not set out a definition of "public benefit". As I explained when the Bill was last before the House, the Government believe that it provides an adequate basis for the Charity Commission to carry out a programme of public benefit checks. This afternoon is not the time to debate the detailed wording of the Bill. There is no doubt that we shall return to the subject of the public benefit requirement in Committee. I look forward to debating it in greater detail then.
	The noble Lord, Lord Phillips, asked whether we could say something about the advancement of human rights. Its inclusion in the list of headings in the Bill reflects its importance as a form of charitable endeavour in the modern world. There is a range of purposes and activities that can be pursued by charities for the advancement of human rights both at home and abroad. They include campaigning for states to sign, ratify and comply with international and regional human rights codes, the monitoring of abuses of human rights and obtaining redress for victims, research and public education on human rights issues, and promoting support and respect for human rights among individuals and corporations. Those and other legitimate human rights activities are more fully described in the Charity Commission's recent publication, Promotion of Human Rights. The Government greatly welcome the steps that the commission has taken through that publication to clarify the considerable scope that charities can have for effective human rights activity.
	The noble Lords, Lord Phillips and Lord Swinfen, referred to the costs of appeal to the tribunal, and how that could perhaps be a barrier to those who believe it is useful and valuable as a means of seeking redress. The tribunal has been designed so that users will be able to represent themselves. We do not think it necessary to extend Community Legal Service funding to them. However, in a few cases users might not be able to represent themselves, such as if there are difficulties with language. In the interests of justice, public funding can be granted exceptionally for representation under the Access to Justice Act 1999. Additionally, where the case is legally complex but the user cannot afford legal representation, the Attorney-General has the discretion to become a party to the proceedings. For those reasons, there is no strong case for establishing a separate suitors' fund, although I listened with interest to the contributions made in arguing that case.
	I turn to the issue raised by the right reverend Prelate the Bishop of Southwell and a number of noble Lords concerning the burden of regulation on smaller charities. I am grateful to him for his comments, which the Government largely endorse. The Bill will require a review within five years of its effect. That review will assess the general burden of regulation and the extent to which the Bill has had an impact on it—for the better, we trust. The Better Regulation Task Force is also planning a study into some aspects of the impact of regulation on charities and other voluntary organisations, and we would be wise to await the outcome of that research and investigation.
	The noble Baroness, Lady Pitkeathley, raised the issue of the Bill perhaps not doing enough to promote philanthropy. The answer to that is that the Bill gives the Charity Commission a clear duty in carrying out its regulatory function to act in a way that encourages, first, all forms of charitable giving and, secondly, voluntary participation in charitable work. That goes a long way to address the issue that she raises. It should not be left entirely to legislation to achieve the objective; it is clearly important for all those involved in charitable organisations to care to promote charitable giving and commitment.
	The noble Lord, Lord Sainsbury of Preston Candover, asked whether the substantial current statement of recommended practice was compatible with the encouragement of charitable giving. The SORP regulations of 2005 were established after considerable consultation in the accountancy and charitable sectors. SORP contains sufficient flexibility to accommodate different types and sizes of charity. The matter is for the commission. Any future review of SORP will undoubtedly take into consideration how it works and its potential impacts over time. That process may be the best way for the issue to be dealt with.
	The noble Baroness, Lady McIntosh, raised the resourcing and efficiency of the Charity Commission, as did other noble Lords. The Joint Committee recommended that professional advice be sought to review the ability of the commission to meet its enhanced responsibilities under the Bill. In addressing that recommendation, the Charity Commission recently carried out a wide-reaching strategic review with external advice and input, to position and equip itself to fulfil its future role. That review will conclude in July and report to the Chief Secretary to the Treasury.
	The noble and gallant Lord, Lord Craig of Radley, made a trenchant and powerful plea for the charitable status of the Armed Forces charities to be given fairer consideration. What I can best say is that the Bill does not in any way jeopardise or affect the continuing charitable status of SNPFs; it is as simple as that. That is specifically continued in the Charity Commission's commentary on the Bill. We value greatly the work of the SNPFs and understand the importance with which they need and deserve to be treated. They are a group of excepted charities—excepted by order or regulation from the general requirement to register with and submit accounts to the commission. In other respects, they are fully subject to the commission's regulatory jurisdiction and powers of investigation.
	The Bill will require excepted charities, including SNPFs, with an annual income of £100,000 to register with the commission. We estimate that between 1,000 and 2,000 of the 15,000 or more SNPFs will exceed that threshold. Below that, excepted charities will remain as they are for the time being, and the £100,000 threshold can be lowered by order. We have stated our intention that, over time, the threshold will be lowered. That will eventually result in the phasing out of the system of exceptions from registration, in the interests of the accountability of those charities. The Bill will not add significantly to the burden of regulation on the charitable sector and the SNPFs in particular.
	The noble Lord, Lord Borrie, raised an important issue relating to the burden of regulation on universities. I am happy to reaffirm the assurances that I gave in Grand Committee in the previous Session that the Government intend to keep any additional burdens to universities as a result of the Bill to an absolute minimum, recognising the existing regulatory burdens that universities face. The basic principles of charity law already apply to universities as exempt charities, and we intend that the monitoring process should adopt the lightest possible touch. We will of course monitor the arrangements and intervene if any significant or unnecessary burdens are introduced.
	We have now spent three and a half hours looking at issues raised by the Bill. I have a whole sheaf of notes left to which I could give much more voice. I fully recognise that they are on important issues, covering the likes of trustee indemnity insurance—I have a long response on that. I have a longish response to one of the points made by the noble Lord, Lord Swinfen, about the Charity Commission. However, I would prefer to deal with some of those issues by correspondence, with points that I may have missed inadvertently in trying to respond to issues raised during the debate.
	I thank all noble Lords who have contributed. It has been a useful start to the reconsideration of a Bill that, as a number of noble Lords have observed, is in pretty good health. I hope that we can continue our work of refinement and improvement. No doubt we will have some spirited discussions and debates in Committee, where many of the important issues raised this afternoon will be given further consideration.
	I thank all those who have expressed their thanks to those on our Front Bench in considering the Bill and its contents as we have. I congratulate the noble Lord, Lord Smith, on his contribution; he told me outside the Chamber that he had been press-ganged into it, but I do not believe that for a moment. I am sure that he will make some helpful and telling contributions during our further discussions. I also thank those who have made supportive comments to our team of officials. During the earlier consideration of the Bill, that team worked extremely hard to answer the many questions and points raised, and to give the noble Baroness, Lady Scotland, and I active and helpful support.
	On Question, Bill read a second time, and committed to a Committee of the Whole House.

Baroness Andrews: My Lords, I am very grateful to noble Lords who have responded so positively to the order. We much appreciate the welcome and we appreciate the work of the Delegated Powers and Regulatory Reform Committee.
	The important procedural point, mentioned by the noble Baronesses, Lady Scott and Lady Carnegy of Lour, has tested the Regulatory Reform Act procedure. That is not surprising as it was often cited during the passage of the Regulatory Reform Act. This would be a major test for the capacity, flexibility and efficacy of the process. It is lengthy and the process of ensuring that the tests are met has been difficult and complex. Reading the reports and considering the way in which the RRO was amended in that process is evidence of that. The work that has gone into the order has involved exploring the limits, the tests and the interpretation of the Act. It has been a formative process and it is a pathfinder.
	Noble Lords on the Delegated Powers and Regulatory Reform Committee noted in their report that it was at the upper limit of what they considered acceptable. I entirely take the point made by the noble Baroness again today. Our experience is now being taken into account as part of the review of the Regulatory Reform Act, which is being undertaken by the Cabinet Office. We have a reflective process in place to establish where we are.
	It might have been possible to reduce the number of provisions by incorporating them into the Fire and Rescue Services Act. That was a possible option, but it would have resulted in a much larger Act. It was concluded that that would have been a burden of its own kind, but the draft order concerns fire safety whereas the Act mainly concerns the organisation and function of fire and rescue authorities. As we are doing two different things in this legislation, we thought that the regulatory reform process was appropriate.
	I say to the noble Baroness, Lady Carnegy of Lour, on the Scottish point that we are confident that the majority of the provisions of the Act will commence in Scotland alongside our own legislation in England.
	Part 3 of the 2005 Act which was passed on 1 April by the Scottish Parliament deals with fire safety issues. Its principles are similar to the regulatory reform order and its objective is to ensure, as far as is practicable, a consistent fire regime across the UK. Obviously, the Scottish Parliament has to take into account different building regulations, legislation and so on. As I said, Part 3 is currently planned to commence in April 2006, which is a similar timescale to that to which we are working in England.
	On the point raised about necessary protection, which is linked to the regulatory reform order, our firm view is that the order not only maintains all necessary protections the existing law offers but that it goes further because puts prevention at the heart of fire safety. I hope that reassures the noble Baroness.
	In relation to the specific point the noble Baroness made about multiple occupancy, I have known situations in the voluntary sector where 10 or even 15 voluntary organisations share a building. That matter clearly has to be covered. The order deals with that. It makes each employer or other occupier responsible for their actions. So, for the safety of themselves and the others who use the building, there is an absolute duty on each employer for the protection of their staff. For others the duty applies to the extent that that person can exercise control over the situation. If there are areas beyond their control, the owner of the building has to take responsibility.
	The duty of responsibility is backed by other duties. Each responsible person is under an obligation to co-operate with other responsible persons in respect of fire precautions. That is a very clear obligation for organisations to work together in their written submissions—for example, when they carry out risk assessments. I imagine that they will have to make sure they know what each says and that they will have to advise other responsible persons of significant findings in the risk assessment, so they can take account of the hazards that arise. That is all backed by the power of enforcement.
	I hope that satisfies the noble Baroness. I can always write to her and provide even more detail if she would like me to.
	I turn to the questions raised by the noble Baroness, Lady Hanham. I shall deal first with the question of what we mean when we say "where necessary" and how the guidance will elaborate on that.
	There are two elements to the assertions which have been made about the use of the term "where necessary". The first is that it contravenes the requirement of the European Directive 89/654. The second is, as the noble Baroness said, that it removes necessary protection. They are interlinked.
	The European point was made by the Fire Brigades Union in response to the minimum requirements laid down in Annexes 1 and 2—directives 4.1 to 4.7 on means of escape and directives 5.1 and 5.2 which concern fire-fighting equipment. The provisions suggested that those were absolute requirements and we disagreed with that. That is not the case. Indeed, we built in the caveat that the obligations laid down in the annex apply whenever required by the features of the workplace, the activity, the circumstances or hazard. We built in that caveat into the articles 13 and 14 the noble Baroness quoted by using the term "where necessary".
	The most important point is about necessary protection. Indeed, no such protection is removed because the whole burden of this legislation is to require the fire precautions to be present they are necessary to protect people. They must be there for necessary protection.
	I cannot give the noble Baroness at this stage any great detail about what the guidance will contain. I can reassure her on the point she raised about delay, that we are firmly of the opinion that our deadline of early January 2006 is very much within reach. It is tight but we aim to have the majority of the guidance published early in January 2006. We have agreed to work closely with the Health and Safety Executive, the DfES and the Department of Health, and others.
	I cannot anticipate what is in the guidance because it is in preparation, but as soon as we have drafts of them I shall be happy to ensure that the noble Baroness sees them. We will be consulting with the stakeholders, and the question has rightly been raised.
	The noble Baroness asked who were the business stakeholders with whom we have been working. The CBI has been the key partner throughout, but we have also worked with the Federation of Small Businesses, the British Hospitality Association, the British Retail Consortium and many more representatives. Again, I am very happy to supply her with a list of the people with whom we have been working if that will help.
	In terms of the guidance itself, I should say that because of the different sectors covered we are producing 11 comprehensive guides suited to each sector. This is not a situation where one size fits all. That is one reason why the guidance is taking time to produce. It has to be carefully done. It is a major undertaking. As I said, we are confident that we are on track to achieve it within the timescale we have set ourselves.
	I hope I have answered all the questions noble Lords have raised. If not, we shall certainly scrutinise Hansard tomorrow. As I have said, we are very happy to share progress with noble Lords as we go along.

Lord Henley: I thank the noble Lord, Lord Evans of Temple Guiting, for that clear, lucid, thorough and detailed explanation of this deeply important order. The noble Lord assured us that it is the first regulatory reform order that we have seen from the Department for Constitutional Affairs. I hope that he will be able to let us know in due course what other regulatory reform orders we are likely to see emanating from that department. After all this time—I think the Act was originally passed back in 2001, which is four years ago—we have seen what might be described as a mere gnat being produced. We hope to see something more, particularly when one considers the extraordinary burdens and regulations that are being imposed on business, not just by the Department for Constitutional Affairs but by all departments throughout the Government.
	The noble Lord also apologised for not being a lawyer. I do not think that that is anything that anyone needs to apologise for. He might consider reporting back to other Ministers in the department—particularly as this is the first time that I remember when we have had two Ministers in that department, the noble and learned Lord the Lord Chancellor himself and the noble Baroness, Lady Ashton, and this is the first regulatory reform order that we have seen from the it, although we are hoping to see many more—that it might have been appropriate for the noble and learned Lord the Lord Chancellor, or even his deputy the noble Baroness, Lady Ashton, to have come along and introduced the order. I say that with no disrespect to the noble Lord, Lord Evans. I am sure that he is learning a great deal of law in his work for the department and if and when he returns to publishing I am sure there will be a wonderful career in legal publishing awaiting him, should he wish it.
	Earlier this afternoon, we heard from the Office of the Deputy Prime Minister on the order on fire safety. That order was much bigger and went a lot further. But in the process, it also consolidated all the matters being put before business and made the whole process somewhat easier for business to understand. As the statement from the department says, this very small order,
	"is to simplify and clarify the law relating to the execution of deeds and documents".
	I appreciate that it might simplify the law, but when one looks at the order it is obvious that only to highly skilled lawyers will it do anything to clarify matters.
	Although I do not suppose that it would be possible, a considerable degree of consolidation of all of the various Acts being amended is needed. What is happening in that area? Will there be a degree of consolidation to make this order—welcome though it is—easier to understand for those who have to use it? I hope that the noble Lord will be able to give me answers to some of those questions. Other than that, I have to say that we have no intention of opposing the order.

Lord Evans of Temple Guiting: My Lords, I beg to move that the draft Adults with Incapacity (Scotland) Act 2000 (Consequential Modifications) (England, Wales and Northern Ireland) Order 2005 be approved. It will be convenient, with your Lordships' permission, to consider another instrument being made under the same power in the Scotland Act 1998. This is the draft Education (Additional Support for Learning) (Scotland) Act 2004 (Consequential Modifications) Order 2005. Both of those instruments were laid before the House before the dissolution.
	I thank your Lordships for agreeing to consider these technical pieces of legislation together. Both instruments are being made under Section 104 of the Scotland Act. Perhaps I may remind noble Lords of the implications of a Section 104 order.
	Section 104 orders are used when changes require to be made to the law of England and Wales or Northern Ireland, or when modifications of reserved law are required as a consequence of legislation in the Scottish Parliament. Such changes would be outside the legislative competence of the Scottish Parliament.
	Section 104 of the Scotland Act provides for subordinate legislation to be made in only this Parliament. When Section 104 orders amend primary legislation, as both before us this evening do, the Scotland Act requires them to be subject to affirmative resolution in both Houses. The instruments will be considered in the other place following our consideration.
	Noble Lords may have read the explanatory material that accompanies these orders but I hope that it will be helpful to outline briefly what the orders will do. The Adults with Incapacity (Scotland) Act 2000 (Consequential Modifications) (England, Wales and Northern Ireland) Order 2005 is consequential on the Adults with Incapacity (Scotland) Act 2000 and is a straightforward use of the power at Section 104 of the Scotland Act.
	The order amends references in the Child Support Act 1991, the Social Security Administration Act 1992 and the Social Security Administration (Northern Ireland) Act 1992. Those all contain references to "the appropriate person" for various purposes relating to disclosure of information. All of those references include a definition of a Scottish mental health custodian, but changes in the Adults with Incapacity (Scotland) Act 2000 mean that the definition requires to be updated.
	The Scottish Act amended the definitions in two of those Acts, but the limits on the legislative competence of the Scottish Parliament mean that those amendments could have effect only as a matter of Scots law. The old definitions in those two Acts still exist in the rest of the UK. The order amends the references as regards England and Wales. The definition in the Northern Ireland social security Act is also amended.
	I now turn to the draft Education (Additional Support for Learning) (Scotland) Act 2004 (Consequential Modifications) Order 2005. Like the order that I have just described, this order is a straightforward use of the power in Section 104 of the Scotland Act. The Education (Additional Support for Learning) (Scotland) Act 2004 was passed in the Scottish Parliament last year. It replaces the system for assessment and recording of children and young people in Scotland with special educational needs with a framework based on additional support needs.
	The 2004 Act places new duties upon education authorities to provide additional support to assist with the school education of children and young persons who need it. Additional support needs are defined more broadly than special educational needs.
	There are also other new duties—for example, in relation to planning for children with enduring complex or multiple needs who require support from outside education services; the provision of independent mediation services; and exchanging information with agencies responsible for supporting such children after they leave school. Education authorities also have a power to help children with additional support needs who are not in the public education system.
	Section 28F of the Disability Discrimination Act 1995 requires education authorities in Scotland not to discriminate against a disabled pupil—or disabled person who may be admitted to school as a pupil—in carrying out their functions under the Acts listed in subsection 1(b) of that section.
	This order amends Section 28F of the Disability Discrimination Act 1995 to ensure that when education authorities carry out their functions under the 2004 Act the prohibition against discrimination in Section 28F will apply.
	The order is being brought forward at this time so that it is in place when the relevant part of the 2004 Act is brought into force in November this year.
	The orders make sensible use of the powers provided by the Scotland Act. I commend them to the House.
	Moved, That the draft order laid before the House on 25 January be approved [8th report from the Joint Committee, Session 2004–05].—(Lord Evans of Temple Guiting.)

The Duke of Montrose: My Lords, I thank the Minister for bringing these measures before your Lordships' House. They are very useful and appropriate and we can offer them broad support. I thank the Government for being prepared to incorporate the wording that has been found to be necessary in Scotland. It will be of great benefit to the Scots firth of Scotland that they will be able to apply some of these regulations using the same operative definition as exists in Scotland.
	The formal part of the order rightly quotes the powers under which this takes place as being contained in Sections 104, 112(1) and 113. I am not technically skilled in these matters but it appears to me that Section 104 is primarily concerned with what the Scottish Parliament can do. If I am educated further, perhaps I will find that there is a Westminster element. However, I feel that Sections 112 and 113 allow government Ministers to help to sort out these problems when they become a little complicated.
	As to the Education (Additional Support for Learning) (Scotland) Act 2004 (Consequential Modifications) Order, it is unfortunate that it has been found that the Educational Needs and Disability Act 2001 needs this fairly radical reassessment. But the last thing we want is for any education authority to feel that it can discriminate against disabled children and therefore it is good to have this measure brought forward. We are pleased to give it our support.

Lord Patten: rose to ask Her Majesty's Government what they consider to be the benefits and disadvantages of a flat rate of income tax.
	My Lords, I am glad to have the opportunity to ask what I believe is the first Unstarred Question of the new Parliament. I particularly look forward to the responses that will come from the three Front Benches. I shall expect nothing of the Minister other than a stalwart defence—and, indeed, advance—of the status quo, with all its glorious baroque, Brownite complexity.
	I am particularly tickled by anticipation of what the noble Lord, Lord Newby, will say from the Liberal Democrat Front Bench. I have not quite calibrated him in the fast-changing Liberal scene. It is a more fissiparous party than it once was—a rather binary trend—and I am not sure whether he is an "Orange Book" Liberal or an old-style Liberal. A great many interesting things have been coming out of the Liberal Party on benefits and taxation, and perhaps the noble Lord will declare himself as more of a radical "Orange Book" Liberal than not.
	Most of all, I look forward to hearing from my noble friend Lord Roberts of Conwy, who will speak from our Front Bench. He is that rare thing, much to be cherished: the radical Welsh Tory. No one does this better beyond Offa's Dyke than my noble friend. We are all licensed to think these days by my right honourable friend the Leader of the Opposition in another place, and I hope that my noble friend will seize the opportunity with both hands and swing the bat in what he has to say at the end of the debate.
	Indeed, with respect, it is time that all of us in the political classes, from left to right, engaged rather more in deeper political thinking. Most political thinking of an innovative kind seemed to stop—with a few noble and notable exceptions—round about 1990. My party has not done very much since, and I must offer up a heartfelt mea culpa for my own indolence in the matter.
	It is clear that New Labour has come to the end of its mining, borrowing and refining of what was essentially Conservative-driven thinking in the 1970s and 1980s in so many areas. Indeed, if the Chancellor of the Exchequer wished to leave himself a lasting memorial it would be to introduce the kind of generous tax breaks for individuals and corporations that would enable them to fund think tanks more generously. Whether Conservative, Labour, Liberal Democrat, Green or flat Earth, rather as exist in the United States. Independently funded, needling, provoking, irritating, sometimes maddening thinking is exactly what would benefit the body politic in the United Kingdom today.
	This debate, and my advancing of a flat tax to which I shall now turn, is designed to do exactly the opposite—to obviate the need for yet one more complicated tax break measure, some sort of new wheeze that would introduce one more strand of complexity into our ludicrously complex and costly taxation system. We should address ourselves to rethinking the way in which individuals and society relate to taxation.
	There is a historical inevitability behind the eventual introduction of a much simpler form of taxation in this country, best encapsulated in the motif of a flat tax, to which people, society and corporations can much more readily relate, recognise as giving government adequate revenues for what they should be doing and accept as being as socially just as possible. So I would like to ask the Minister, as he makes his reputation in this place, to be as open-minded as possible in exploring what comes next.
	Flat taxation has a number of advantages that I shall now attempt to iterate. First, it is simple; secondly, it is transparent; thirdly, it makes self-certification child's play; and fourthly, there are just two basic levers to pull to make it work. The first lever is to set the level of personal and/or corporate taxation at 20, 25, 30 per cent, or whatever. The second lever is the level at which the personal allowance is set: it could be £10,000, £15,000 or £20,000. Fifthly, the flat tax system is very progressive. If implemented, it would take a huge number of taxpayers on low income straight out of tax, reducing their dependency on sometimes very complex means-tested, income-related credits and benefits that are socially, economically and politically undesirable.
	There is no opportunity for me in a properly time-limited 10-minute speech to define the right level of flat tax for the UK in the year 2005, but I can at least skim the surface. In the year ending April 2004, the median gross earnings for full-time employees on adult rates of pay were £22,060, but with taxation beginning after the first £4,745. Under a flat taxation system, the level could be fixed at, say—I bring this before your Lordships for illustrative purposes only—25 per cent, and the level at which taxation began could be between £10,000 and £15,000 of earnings. That would take something between 10 million and 15 million people out of taxation altogether, depending on the levels chosen and the way in which the two levers are pulled.
	Well, the Left—or what is left of the Left—might say that 10 million or 15 million people taken out of tax is all very well, but those advantages would be offset by the fact that some of the rich would become richer, government revenues would be reduced and the dreaded cuts in social provision would emerge in health and education, all apparently as a direct result. Unfortunately, the very word "cuts", which is so deeply embedded in our political rhetoric, means that so much of the territory of sensible debate in this country is now a no-go area, a rhetorical no man's land. The left of centre threatens that it would mean the end of civilisation as we know it; the right of centre has historically—over the past eight years anyway—cowered like a rabbit before a stoat in front of the onslaught about alleged cuts in social provision. And so our grotesquely complex system continues, with all its asymmetrical effects, leading to disincentives and wasted effort by all those involved.
	A flat tax system would be a great incentive to investment, to the starting up of new enterprises. The tax environment today gives all too little relief to people who lose in business and taxes profits for preference every time. A flat tax system would also reduce the onerous effects on employment and job creation of what is known, in the unlovely argot of the economist trade, as the tax wedge, which is such a disincentive to employment. The tax wedge damages the employment prospects of the less skilled and, worse, of the unemployed trying to get their feet on the paid ladder because the gross cost to a company or individual entrepreneur starting up a business might well be worth more than the work itself. Anyone pursuing British business, with experience in British business, such as the noble Viscount, Lord Chandos, would readily see the problems that the tax wedge causes.
	A flat tax system would also mean that the tide to create more and more civil servants would turn, ebb and lose its velocity. Those excellent, highly trained people in the Treasury and elsewhere could be usefully redeployed, many in the productive parts of the economy, a few in the other parts of the public service.
	A flat tax system would have exactly the same effect on the ever-burgeoning number of those in the professional services firms—I know that the noble Lord, Lord Newby, has some experience—who are equally locked into the non-productive industry of tax planning and advising on legitimate tax avoidance, expending much unnecessary effort. Indeed, those who wish to avoid tax and those who advise them seem to be locked into a mutually pointless war of attrition, worse than anything we saw on the battlefields of the Somme—a kind of arms race of the tax avoidance industry and those in the tax world trying to stop avoidance. That contributes nothing to national well-being, and it ties down far too much talent in fruitless tax trench warfare.
	Is all this theoretical—a Conservative taking the opportunity of the few months of thinking that we have been allowed? No, it is working, not only in some small island states but in at least four countries in the European Community. Estonia, most notably, has had an extraordinarily successful flat tax system since 1994 and is now reducing it. There, the tax take as a percentage of GDP has not been slashed. There have not been cuts, there have been improvements. Although a few of the rich might well have got richer, there has not been the devastation to the social structure of Estonia that many people would think.
	I end on this note: inequalities, particularly in a period of taxation transition, may occur, but let me tell your Lordships two things about economic inequalities. First, Labour has, through its tax and benefits system, created more, not less, inequality since 1997. Secondly, I believe firmly that economic inequalities often happily subvert social inequalities, giving some of the best routes to what used to be called betterment and those who wish to see the betterment of our country.
	There needs to be deeper thinking on taxation, and serious consideration should be made by the body politic across the political divide, looking at the benefits, and the disadvantages, of a flat tax system.

Lord Newby: My Lords, I thank the noble Lord, Lord Patten, for introducing this debate. This is a platitude which one always says in such a debate but in this case it is heartfelt. The Liberal Democrats, for our sins, have decided to establish a commission to look at the tax system as a whole. One of the things we committed ourselves to was to consider a flat tax. Having had a crash course in flat taxes in order to speak in this debate will give me a bit of an edge in terms of the contribution I hope to make to the commission, and I am grateful to the noble Lord for stimulating that.
	In response to the noble Lord's question about whether I am an old-style or an Orange Book Liberal, some would argue that the Orange Book Liberals are really old-style Gladstonian Liberals and that it is a false choice. For most of my political career, I have been very happy to describe myself as a social democrat. I am very happy, if it helps the noble Lord in thinking about what my views might be, to consider myself a new Liberal circa 1910, but I am not sure that that will help him all that much.
	As ever with taxes, even a very simple concept, as a pure, flat tax undoubtedly is, does not remain simple for very long. It is clear that the advocates of flat taxes have a variety of models and motives in mind, not least to use the flat tax as a means to reduce the overall tax burden. This was clearly a principal motive for Steve Forbes when he put forward a flat tax in his presidential campaign in 1996, and it is clearly a motive behind a recent briefing from the Adam Smith Institute on the subject. In its central proposal, it assumes that one would introduce a flat tax which would cut personal taxation by some £50 billion. Not surprisingly, it finds that nobody would lose under a flat tax in those circumstances.
	However, if one is serious about introducing a flat tax for the UK, one's central proposition should be that any flat tax is revenue neutral. We saw at the recent general election how very difficult it is to identify substantial savings and cuts in government expenditure which are credible and have an acceptable political price. So the rest of my remarks are predicated on the suggestion that any flat tax would be revenue neutral.
	Even if you make that assumption, you have to address a number of other key issues. First, which of the existing reliefs do you abolish? For example, the Adam Smith Institute proposes to abolish the relief on personal savings—that is, ISAs—and on certain state benefits. It would abolish capital gains tax taper relief. Some of those may be good ideas, but they are big issues which would need to be seriously addressed in any proposal.
	Secondly, would the flat tax apply only to personal income or would it also apply to company taxation? If you are going to introduce it, there is some logic to applying it as far across the board as you can to produce a neutrality, as it were, of tax.
	We do not have time this evening to go into many of these issues, but if you were going to introduce a flat tax, and it was going to have the benefits that it is said to have, you would probably want to abolish as many reliefs as possible and apply it as broadly as you could.
	Leaving that matter aside, what are the benefits of a flat tax? The noble Lord, Lord Patten, has enumerated some of them. The one with which everybody can agree is that a flat tax is simpler. I think that noble Lords on all opposition Benches would agree that the Chancellor's tinkering with the tax system, in a manner which has led to an accretion of the tax scheme, has not been beneficial to the economy and that many of the wheezes that he has introduced have been counterproductive. Therefore, any proposal that is going to bring about a great simplification deserves to be taken seriously.
	It obviously flows from the fact that the flat tax is simpler that it would be less costly to collect. It would be easier for employers to do their sums; it would be easier for individuals to do their tax returns; and it would be easier for the Inland Revenue to work out what the correct amount of tax would be.
	It is argued also that a flat tax would increase revenue because it would give less scope and incentive for evasion. You are reducing a top rate and you are getting rid of a lot of allowances, so it is much less easy to evade taxes. And it is argued that a flat tax would have great attractiveness to the UK because people would want to come to work and live here because the top rate would be eliminated and people would see and have a very simple tax structure. That is another potential benefit.
	The flipside of making the tax system simpler is that it would become much less easy to tinker with it in future. Once you have made a great principle of simplicity, it is less easy to change that.
	Finally, in terms of the advantages, a flat tax would potentially take many poorer people out of income tax all together. This has long been a Liberal Democrat aspiration, but it has never been a central part of our policy because we have never been able to afford it.
	Therein lies one of the problems. When one looks at the disadvantages of a flat tax, the first issue is the distributional effect. The distributional effect will depend a lot on where the threshold is set. The noble Lord, Lord Patten, suggested a significant rise in the threshold, but there is no absolute need under a flat tax to have any particular threshold at all—that is a matter of choice. If you were to raise the threshold significantly, it would undoubtedly take many lower income earners out of income tax all together. From a tax neutral perspective, it would also reduce the amount of tax paid by the rich, on the assumption that there would not be any significant behavioural changes that would bring a lot of the income on which they are currently avoiding paying tax into the tax net. You can argue about what the likely impact would be. My guess is that it would be not all that great.
	However, my central assumption is that the people who would pay more would be middle class, middle-income earners, because of the large amount of people at the bottom end of the scale who have come out of the tax system all together. That is an inevitable consequence of a flat tax which is revenue neutral.
	If you decided that you did not want to raise the threshold significantly, the distributional effects of a flat tax would be very different. Instead of benefiting, the poorer people would lose out and one of the main benefits of the tax would be lost.
	Many of the benefits that are claimed for a flat tax are pretty illusory. It was interesting that the noble Lord referred to Estonia. A number of eastern European countries have introduced a flat tax, Latvia and Russia among them. I agree with the noble Lord on the need for a greater public policy debate in this country, but how we find the funding for that is an interesting question. Research by the Brookings Institute and the IMF on the Russian flat tax suggest that you cannot claim that the tax itself was responsible for an increased tax take, and it is very difficult to make the case that the flat tax led to greater work incentives. So I am unpersuaded of some of those alleged advantages.
	One can also not avoid the question of which allowances you abolish or do not abolish. While you can have a lot of allowances, if you want, with a flat tax—and the Adam Smith Institute proposes keeping allowances for charitable donations and pension reliefs—you can equally have no allowances without a flat tax. For example, we abolished mortgage tax relief over a period; that was one of the main issues relating to the American flat tax proposal. There are a lot of allowance issues which would need to be resolved.
	Out of all that—the distributional effect and the allowance issues—comes the political cost of doing it. As we found at the last general election, proposing a local income tax, which most people would have benefited from but which some people lost out to, resulted in a debate which concentrated 99 per cent on exactly who lost out. The volume created by the criticism of the losers largely drowned out the discussion of who would benefit. In a revenue neutral flat tax system many people would lose. The political climate needed for introducing a flat tax would be extremely difficult to find.
	I suspect that all of us on these Benches and the Conservative Benches can agree that we need to kick start the simplification of the personal tax system. I am as yet unpersuaded that you need to do that by a flat tax system, or that the flat tax system is the best way in which to do that. But I believe that the debate on how we have a major simplification of the personal tax system is one that we must have in this Parliament.

Lord Roberts of Conwy: My Lords, I congratulate my noble friend on securing this debate on the fascinating topic of flat taxes, and flat rate income tax in particular. I am not sure that I can swing the bat with the freedom and vigour that he expects of me, but I shall do my best. I begin by reminding him that at least flat taxes are not simply the theoretical curiosity they were, when they were first suggested by Robert Hall and Alvin Rabushka 20 years ago. Since then, legislation for flat taxes has been introduced, admittedly unsuccessfully, to the United States Senate—and as the noble Lord, Lord Newby, reminded us, Steve Forbes ran a campaign for the Republican presidential nomination on a flat tax policy, in 1996.
	Flat taxes are spreading round the world. The Baltic states—Estonia, Lithuania and Latvia—have led the way, Russia, Serbia, Ukraine and Slovakia have followed, and Poland has recently announced plans for a flat tax of 18 per cent. Barbados, Hungary and the Czech republic are said to be considering plans for a flat tax. Even Germany, that most sclerotic of European economies, has cut its corporation tax rate to 19 per cent, and is said to have considered adopting a flat tax.
	Those countries that have adopted, or are thinking of adopting, flat taxes, have their reasons, of course. First, flat taxes enhance economic freedom; they remove the behavioural effects that the complexities of the tax system cause, with its different rates and reliefs. They give people the scope to make unadulterated decisions as to how much they earn and spend, compared with how much they save. Not everyone would argue that that is a good idea; there are many ways in which governments rightly seek to influence the behaviour of citizens. That is why there is a duty on tobacco, alcohol and petrol. But the current Chancellor of the Exchequer has introduced, as we have heard, a multitude of credits and complications to the tax system to manipulate the behaviour of British people. Those could be reduced without necessarily going down the road towards a flat tax.
	Proponents of flat taxes have a second argument, which is related to the first but broader, that a flat tax would simplify the tax system. Steve Forbes famously argued that tax return forms could be reduced to the size of a postcard. After considering a few further arguments for flat taxes, I shall argue that there is much that we can do to simplify the current tax system without necessarily adopting a flat tax.
	The third argument put for flat taxes is that such reforms would remove the double taxation of savings. Flat taxes would prevent people being taxed on their earnings and then taxed again on the interest from investing those earnings. But, of course, not all interest is taxed; despite the Chancellor's abolition of dividend tax credits, interest from tax-efficient savings accounts such as ISSAs, remain untaxed. There are ways of reducing taxation on savings without resorting to flat taxes. However, there is no question but that we need to encourage savings. The savings ratio has fallen by a third under this Government and our pension system is in crisis. Before the general election the Conservative Party consulted on proposals to reduce the burden of taxation on savers, such as through introducing a lifetime savings account, and to encourage pension saving.
	Other arguments for flat taxes rely on the suggestion that they would reduce the tax burden. A flat-rate tax even with a substantial personal allowance would significantly cut taxes on high earners. The belief is that, in line with the theories of Dr Arthur Laffer, this tax cut would stimulate the economy and would encourage people to work harder and more productively and to invest more in productive businesses. Investment would also be drawn in from abroad, and the result would be an upturn in economic growth.
	Two effects are suggested. First, flat taxes would not necessarily be regressive if middle and high-income earners worked harder because their taxes were cut; they would end up paying as much tax as under the current system. I am sure that noble Lords are aware of the work of Mr Richard Teather, the associate senior lecturer in tax law at Bournemouth University, who recently carried out research for the Adam Smith Institute. He argues that in the United Kingdom a flat rate of 22 per cent with a personal allowance of £12,000 would benefit most of those on just below average incomes. The poorest third would benefit more than the richest third. The poorest 10 per cent would benefit by 9 per cent of their income; the richest decile by just 1.4 per cent. And 10 million people would be removed from the income tax net. I am sure that noble Lords are aware of his work because that figure of £10 million has been mentioned more than once.
	The second suggested effect of increased economic activity resulting from a flat-rate tax is that tax revenues need not fall. If people earn more, they will pay more tax. Teather claims that, under his proposals for a 22 per cent flat tax in the United Kingdom, increased economic growth would make up for initial losses in tax revenue within three years.
	Those claims are often backed up using the success of tax cuts in Britain and America during the 1980s under Ronald Reagan. The top rate of tax in America was cut from 70 per cent to 28 per cent. Growth averaged 4 per cent a year. Under Margaret Thatcher, my noble friend, the top rate of tax in the United Kingdom fell from 83 per cent to 40 per cent. Per capita GDP rose by 24 per cent. However, I would remind your Lordships that neither the noble Baroness nor Reagan introduced a flat tax; they simply reduced taxes.
	It would also be wrong to suggest that the economic success stories of Britain and America were due solely to tax cuts. But there is no doubt that low-tax economies are the most successful economies the world over. They generate more wealth and create more jobs. That is why the Conservative Party proposed tax cuts of £4 billion before the general election and why we would have reduced borrowing by £8 billion to avoid the tax rise that it appears the Government will shortly have to introduce.
	Unfortunately, under this Government the trend is towards a higher and not a lower tax economy. They have introduced 66 tax rises since they came to power and the average household pays £5,000 more tax a year than it did in 1997. I am in no doubt that this trend should be reversed for the sake of the British economy. It is no wonder that productivity growth has fallen by a third, that we have the biggest trade deficits since the 17th century and that Britain has slipped from fourth to eleventh in the World Economic Forum's international competitiveness league. But I think it is important to recognise that the benefits of a lower-tax economy could be secured without necessarily resorting to flat tax.
	I return to the topic of tax simplification on which I think we are all agreed. The tax system has become more complex especially in recent years in terms of the weight and size of tax legislation and the guides written to assist people or business that need to understand it. The number of pages in the Finance Act averaged 346 from 1987 to 2003. The 2004 Finance Act was 634 pages long. The cost of administering the system has grown. Membership of the Chartered Institute of Taxation has grown by 42 per cent in the past decade. The Inland Revenue's budget has doubled in real terms in the five years to 2004. All that gives us some idea of the growth in the complexity of the UK tax system. It is riddled with inconsistencies, complexities and obsolete provisions that impose considerable burdens on taxpayers, businesses and Her Majesty's Customs and Revenue.
	Had the Conservative Party won the election we would have established a simplification project to run alongside the current Tax Law Rewrite Project. We would also have introduced a tax structure review programme to look into existing tax legislation, to identify measures to be modified, approved or abandoned.
	Tax simplification can be achieved without the "big bang" approach of introducing a flat tax. But the Government must have the will to achieve such simplification. On current form it appears that they lack such will.